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A  Study  in  the  Metl^odology  of  tl^e 
Social  Sciences 


Albion  W.  Small 

Author  of  "General  Sociology' 

Chicago:    The  University  of  Chicago  Press 

London:  T,  Fisher  Unwin,  I  Adelpl^i  Terrace 


CoPYEiQHT  1907  By 
The  University  of  Chicago 

PublisLed  October  1907 

Composed  and  Printed  By 

The  UniTersity  of  Chicago  Press 

Chicago,  Illinois,  U.  S.  A. 


This  book  is  a  fragment  which  I  hope  will 
some  time  find  its  place  in  a  more  complete  study 
of  the  relations  between  nineteenth-century 
social  sciences  and  sociology. 

The  larger  investigation  is  in  progress  in  my 
seminar,  and  results  are  already  in  sight  which 
justify  belief  that  the  work  will  not  be  without 
value. ' 

On  the  purely  methodological  side,  this  investi- 
gation was  stimulated,  if  not  originally  suggested, 
by  experiences  in  connection  with  the  St.  Louis 
Congress  of  Arts  and  Science. 

In  all  departments  of  progressive  knowledge, 
the  second  half  of  the  nineteenth  century  was 
unique  in  its  intensive  development  of  scientific 
analysis.  It  is  not  probable  that  scholars  will  ever 
permanently  appraise  the  importance  of  analysis 
below  their  present  estimates,  but  it  is  certain  that 
we  are  entering  an  era  of  relatively  higher  appre- 
ciation of  synthesis. 

The  most  distinctive  trait  of  present  scholar- 
ship is  its  striving  for  correlation  with  all  other 
scholarship.  Segregated  sciences  are  becoming 
discredited  sciences. 


The  sociologists  are  aware  that  steriHty  must 
be  the  fate  of  every  ceHbate  social  science.  Cross- 
fertilization  of  the  social  sciences  occurs  in  spite 
of  the  most  obstinate  programs  of  non-inter- 
course. Commerce  of  the  social  sciences  with  one 
another  should  be  deliberate,  and  it  should  make 
the  policy  of  isolation  disreputable. 

An  objective  science  of  economics  without  an 
objective  sociology  is  as  impossible  as  grammar 
without  language.  The  present  essay  attempts  to 
enforce  this  axiom  by  using  Adam  Smith  as  a 
concrete  illustration. 

On  the  purely  human  side,  unintelligence  or 
misintelligence  about  the  part  that  falls  respect- 
ively to  economic  and  to  sociological  theory  in 
the  conduct  of  life  is  a  moral  misfortune.  How- 
ever quixotic  it  might  be  to  hope  that  either  of 
these  forms  of  theory  might  be  popularized  to 
any  great  extent  in  the  near  future,  ambition  to 
make  economists  and  sociologists  understand  each 
other  a  little  better  is  not  altogether  indefensible. 

Incidentally  this  book  does  what  it  can  to  off- 
set the  harm,  more  costly  to  the  misled  than  to  the 
misrepresented,  that  ill-report  has  done  to  eco- 
nomics and  economists.  The  economists  who 
have  been  written  down  as  procurers  to  men's 
most  sordid  lusts  have  been,  as  a  rule,  high- 
minded  lovers  of  their  kind.    The  most  abused  of 


them — Smith,  Malthus,  Ricardo,  Mill — devoted 
themselves  to  economics  partly  because  they  were 
genuine  philanthropists.  They  set  themselves  the 
task  of  blazing  out  the  path  that  leads  to  material 
prosperity,  and  of  warning  as  fully  as  possible 
against  side-tracks  that  would  end  in  a  fool's 

If  economic  theory  has  at  times  tended  to  take 
on  the  character  of  a  shopkeeper's  catechism,  and 
at  other  times  to  become  a  mere  calculus  of 
hypothetical  conditions,  the  general  fact  is  not 
changed,  that  intelligent  conduct  of  life  must 
always  presuppose  an  adequate  science  of 

The  economists  and  the  sociologists  are  study- 
ing the  real  conditions  of  life  from  different 
angles  of  approach.  They  are  already  learning  to 
make  use  of  each  other's  methods  and  results. 
The  investigation  of  which  this  book  is  a  partial 
report  is  in  the  interest  of  a  more  conscious  and 
systematic  partnership. 

The  study  in  which  the  book  is  an  initial  step 
starts  out  with  the  perception  that  nineteenth-cen- 
tury economic  theory  was  at  bottom  an  attempt 
to  discover  the  principles  of  honorable  prudence,/ 
not  to  codify  a  policy  of  predatory  greed.  Eco- 
nomic theory  became  socially  sterile  through 
paresis  of  its  conviction  that  morality  is  more 

viii  PREFACE 

than  prudence.  When  we  shall  have  learned  to 
reckon  with  the  accredited  results  of  economic 
analysis,  in  genuine  correlation  with  equally  repu- 
table results  of  psychological  and  sociological 
analysis,  we  shall  have  advanced  a  stadium  of 
intelligence  similar  to  that  which  was  covered  in 
assimilating  the  discovery  that  physical  science  is 
not  atheism.  If  we  can  begin  to  interpret  the 
progress  of  the  social  sciences  since  Adam  Smith 
as,  on  the  whole,  an  enlargement  and  enrichment 
of  the  entire  area  of  moral  philosophy,  in  which 
the  preserve  of  economic  theory  was  the  most 
intensively  cultivated  field,  we  shall  have  done  a 
service  for  the  next  generation.  We  have  been 
seeing  these  things  out  of  their  relations.  It  is 
possible  to  furnish  our  successors  with  more 
accurate  clues. 

A  comment  upon  the  table  of  contents  will 
partially  explain  the  task  which  the  book  under- 
takes as  a  portion  of  a  larger  task  to  be  reported 
upon  in  later  volumes. 

Titles  III-VII,  inclusive,  must  not  be  under- 
stood as  promises  of  systematic  treatment  of  the 
material  actually  within  their  scope.  On  the  con- 
trary, they  are  merely  formulas  for  classifying 
those  materials  in  the  parallel  portions  of  The 
Wealth  of  Nations,  in  which  the  problems  of 
economics  and  sociology  are  intertwined.     The 


titles  indicate  in  a  general  way  the  large  problems 
of  methodology  which  the  corresponding  por- 
tions of  Smith's  treatise  implicitly,  but  not  ex- 
plicitly, raise.  The  very  fact  that  the  discussion 
under  those  titles,  on  the  basis  of  Smith's  own 
analysis,  contains  hardly  more  than  a  hint  of  the 
whole  range  of  problems  which  the  titles  now 
suggest,  serves  to  carry  the  argument  that  eco- 
nomic technology,  abstracted  from  the  rest  of 
social  science,  leaves  yawning  hiatuses  in  our 

A.  W.  S. 

June  io,  1907 



I.  Introduction i 

II.  The  Sources 25 

III.  The   Economics   and   Sociology   of   Labor  79 

IV.  The  Economics  and  Sociology  of  Capital  155 
V.  Economic   vs.   Sociological  Interpretation 

OF  History 181 

VI.  The  Problems  of  Economic  and  of  Sociologi- 
cal Science 189 

VII.  The  Relation  of  Economic  Technology  to 
Other    Social   Technologies,    and    to 

Sociology      209 

VIII.  Conclusion 235 


If  one  were  to  come  upon  The  Wealth  of 
Nations  for  the  first  time,  with  a  knowledge  of 
the  general  sociological  way  of  looking  at  society, 
but  with  no  knowledge  of  economic  literature, 
there  would  be  not  the  slightest  difficulty  nor 
hesitation  about  classifying  the  book  as  an  inquiry 
in  a  special  field  of  sociology. 

Under  those  circumstances  there  would  be  no 
doubt  that  the  author  of  the  book  had  a  fairly 
well-defined  view,  though  not  in  detail  the  modern 
view,  of  the  general  relations  of  human  society, 
and  of  the  subordinate  place  occupied  objectively, 
if  not  in  conventional  theory,  by  the  economic 
section  of  activities  to  which  the  book  was 

On  its  first  page  the  reader  would  get  hints  of 
the  outlook  in  the  mind  of  the  author,  and  it 
would  not  be  hard  to  construct  from  those  hints 
a  perspective  which  would  contrast  very  directly 
with  certain  points  in  the  view  that  afterward 
stole  into  vogue  among  classical  economists  and 
working  capitalists. 

Sombart  ^  has  made  a  very  strong  statement 

^  Moderne  Kapitalismus,  Vol.  I,  pp.  196,  et  passim. 


of  the  fact  that  the  era  of  modern  capitaHsm 
differs  from  earlier  industrial  epochs  in  something 
far  deeper  than  mere  methods  of  doing  business. 
He  points  out  that  the  dominant  motive  for  doing 
business  has  changed.  The  controlling  purpose 
of  modern  business  is  to  increase  the  volume 
and  enlarge  the  power  of  capital  Capital  for 
its  own  sake,  and  for  the  social  power  it  confers, 
is  the  standard  of  modern  economic  life. 

On  the  other  hand,  capital  has  never  been  to 
any  great  degree  an  end  in  itself  until  the  last 
three  centuries,  and  particularly  since  the  indus- 
trial revolution  at  the  end  of  the  eighteenth  cen- 
tury. Previous  to  that  time  the  idea  of  wealth, 
in  the  minds  of  rich  and  poor  alike,  was  that  it 
was  worth  having  only  to  spend.  Men  wanted 
wealth  because  they  wanted  to  consume  it,  not 
because  they  wanted  to  capitalise  it.  In  other 
words,  their  whole  philosophy  of  life,  whether  it 
was  expressed  in  their  economic  actions  or  in 
abstract  theory,  was  to  the  effect  that  the  life  was 
more  than  the  things;  that  people  and  their  needs 
were  the  end-end,  while  wealth  was  merely  a 

Whatever  the  influence  of  Adam  Smith's  work 
may  have  been,  one  cannot  study  his  philosophy 
as  a  whole,  even  in  the  fragment  of  it  that  has 
come  down  to  us,  without  being:  certain  that  his 


basic  positions  were  clearly  and  positively  the 
human  rather  than  the  capitalistic  principles.  The 
author  of  The  Wealth  of  Nations  did  not  assume 
that  the  service  of  capital  was  the  goal  of  eco- 
nomic activity.  On  the  contrary,  he  assumed  that 
all  economic  activity  was,  as  a  matter  of  course, 
a  means  of  putting  people  in  possession  of  the 
means  of  life.^ 

Furthermore,  to  state  the  same  fact  in  a  little 
different  way.  Smith  assumed  that  the  whole  value 
of  economic  activities  was  to  be  decided  by  their 
effects  on  consumption.  That  is,  instead  of  put- 
ting the  production  of  wealth  in  the  forefront, 
as  the  most  significant  measure  of  economic  pro- 
cesses, he  evidently,  at  least  in  his  fundamental 
theory,  regarded  the  production  of  wealth  as 
merely  incidental  to  the  consumption  of  wealth. 
His  whole  moral  philosophy — or,  as  we  should 
say  today,  his  sociology — was  the  ultimate 
evaluator  of  all  production  and  consumption; 
that  is,  the  human  process,  as  it  was  analyzed  and 

'Thus,  in  the  "Introduction"  to  Book  IV  of  The  Wealth 
of  Nations,  he  says :  "Political  Economy,  considered  as  a 
branch  of  the  science  of  a  statesman  or  legislator,  proposes 
two  distinct  objects;  first,  to  provide  a  plentiful  revenue  or 
subsistence  for  the  people,  or  more  properly  to  enable  them  to 
provide  such  a  revenue  or  subsistence  for  themselves ;  and 
secondly,  to  supply  the  state  or  commonwealth  with  a  revenue 
sufficient  for  the  public  services.  It  proposes  to  enrich  both 
the  people  and  the  sovereign. 


synthesized  by  moral  philosophy,  was  judged 
to  be  the  tribunal  of  last  resort  for  verdict  upon 
the  economic  process. 

This  has  most  certainly  not  been  the  per- 
spective of  nineteenth-century  political  economy 
as  a  whole,  so  far  as  England  is  concerned.  To 
speak  figuratively,  then,  the  apostolic  succession  in 
social  philosophy  from  Adam  Smith  is  through 
the  sociologists  rather  than  the  economists.  The 
sociologists  have  kept  alive  the  vital  spark  of 
Smith's  moral  philosophy.  They  have  contended 
for  a  view  of  life  in  terms  of  persons  rather  than 
in  terms  of  technology.  That  is,  they  have  put 
persons  in  the  center  of  their  picture  of  life,  and 
have  assigned  a  subordinate  place  to  the  theory 
of  those  technical  activities  which  deal  with  the 
material  products  of  persons.  The  economists 
are  the  separatists  and  heresiarchs,  in  exagger- 
ating the  importance  of  a  technology  till  it  has 
overbalanced,  in  social  doctrine,  the  end  to  which 
it  is  normally  tributary.^ 

If  we  did  not  know  that  Smith's  economic  phi- 
losophy was  merely  a  division  of  his  sociology, 
the  beginning  of  his  Wealth  of  Nations  would 

'  Throughout  this  essay  I  speak  of  the  classical  political 
economy  as  though  it  were  still  dominant  in  England  and  the 
United  States.  I  leave  to  a  later  essay  the  modifications 
which  are  necessary  in  order  to  make  the  generalizations  fit 
subsequent  developments  in  economic  theory. 


seem  to  be  very  abrupt.  As  a  matter  of  fact, 
there  is  no  abruptness,  because  the  preliminaries 
which  have  to  be  understood  as  an  introduction 
to  the  book  have  to  be  suppHed  from  what  we 
know  of  his  general  philosophy.^  For  our  pur- 
poses it  is  unnecessary  to  ask  how  adequate 
Smith's  view  of  human  life  was,  according  to  the 
ideas  of  present  sociology.  It  is  enough  that  the 
moral  order  was  the  inclusive  concept  in  his 
philosophy,  while  the  economic  process  was  the 
included  and  tributary  concept.   In  so  far  as  eco- 

*  This  initial  proposition  not  only  contains  nothing  new,  but 
it  repeats  the  invariable  conclusion  of  all  who  have  given  at- 
tention to  Smith's  whole  system  of  thought.  As  Hasbach  has 
rather  caustically  hinted  (Untersuchungen,  p.  20),  this  pri- 
mary fact  seems  to  have  been  duly  observed  by  everyone  but 
the  economists !  It  was  pointed  out  distinctly  enough  by 
Dugald  Stewart  in  1793,  and  it  has  been  recognized  by  nearly 
every  writer  on  Smith  who  does  not  confine  attention  merely 
to  his  economic  doctrines.  For  example,  Oncken  (Smith  und 
Kant,  Leipzig,  1877)  remarks  (p.  16)  :  "Es  sind  Glieder  eines 
Systemes  der  praktischen  oder  Moral-Philosophie  in  ihrem 
Gesammtumfange,und  man  wird  der  Arbeit  des  Urhebers  nicht 
gerecht,  wenn  ein  died  selbstandig  herausgehoben  wird,  um  es 
unabhangig  fiir  sich  einer  weiteren  Ausbildung  zu  unterwerfen. 
Ethik,  Politik  und  Oekonomik,  so  lautet  die  Trias,  welche  den 

Inhalt      der      Smith'schen      Philosophic     bildet Diese 

Dreitheilung  ist  dem  schottischen  Meister  iibrigens  nicht 
einmal  original.  Sie  hat  sich  langsam  aus  dem  Entwicke- 
lungsgange  der  praktischen  Philosophic  seit  ihren  Anfangen  im 
Alterthum  herausgebildet,  und  war  im  vorigen  (i8ten)  Jahr- 
hundert  allgemein  iiblich."  Variations  of  the  same  conclusion 
might  be  cited  in  large  numbers. 


nomic  theory  has  obscured  and  beclouded  this 
view,  it  is  an  aberration,  rather  than  an  orderly 
extension  of  social  science.  This  is  always  the 
case  when  a  theory  of  means  overshadows  the 
theory  of  the  ends  which  the  means  should  serve. 

The  opening  paragraph  ot  Smith's  introduc- 
tion is  strictly  consistent  with  these  claims,  viz. : 

The  annual  labour  of  every  nation  is  the  fund  which 
originally  supplies  it  with  all  the  necessaries  and  conven- 
iences of  life  which  it  annually  consumes,  and  which  con- 
sist always  either  in  the  immediate  produce  of  that  labour, 
or  in  what  is  purchased  with  that  produce  from  other 

This  passage  invokes  a  picture  of  a  nation  con- 
suming the  products  of  its  annual  labor.  The 
inquiry  is,  in  a  word:  How  may  the  aggregate 
wealth  available  for  consumption  be  made  as 
great  as  possible?  There  is  no  reference  to  accu- 
mulation, to  increase  of  capital.  That  comes  later, 
in  its  proper  place.  The  center  of  interest 
is  the  nation  of  consuming  persons.  How  may 
they  have  the  most  of  the  things  which  they  need 
to  consume  in  order  to  be  the  most  prosperous 
persons?  We  are  in  danger  of  being  branded  as 
enemies  of  our  kind,  if  we  bring  to  light  the  dis- 
tance economic  theory  and  practice  have  drifted 
from  this  anchorage.  Today  the  main  question 
is:    How  may  the  social  machinery  for  grinding 


out  capital  be  made  most  efficient?  The  clause 
is  not  consciously  added,  "regardless  of  its  effects 
upon  men;"  but  the  extent  to  which  this  clause 
actually  vitiates  the  temper  and  program  of  theo- 
retical and  applied  economics  really  constitutes 
the  central  social  problem  of  our  epoch. 

This  opening  paragraph  also  supports  the 
belief  that  frank  repetition  of  some  of  Smith's 
confident  presumptions  would  today  place  men 
well  along  in  the  way  toward  extreme  socialism. 
No  modern  trade-union  leader,  at  any  rate,  is 
more  sure  than  Adam  Smith  was  that  labor  is 
the  original  source  of  wealth.  The  difference  is 
that  Smith  took  it  for  granted,  while  the  modern 
laborer  has  to  fight  against  jealous  denial  of  this 
most  rudimentary  economic  truth.  Today  capi- 
tal is  not  always  content  even  to  share  honors 
with  labor.  Capital  often  goes  so  far  as  to  claim 
superior  virtues  in  the  productive  process,  and 
to  imply  priority  of  right  to  the  output.  This 
perversion  has  not  merely  crept  into  economic 
practice,  but  it  is  written  large  between  the  lines 
of  much  economic  theory.  We  shall  see  that  this 
is  in  a  considerable  degree  a  change  that  marks 
secession  from  the  moral  presumptions  upon 
which  Smith's  economic  theories  were  based. 

Assuming,  then,  the  homely  fact  that  a  nation 
is  a  collection  of  persons  needing  consumable 


goods  in  order  to  proceed  with  the  other  things 
that  are  of  subsequent  and  superior  importance, 
and  in  view  of  the  fact  that  the  produce  of  the 
nation's  labor  is  a  dividend  that  has  to  be  shared 
by  all  the  population,  Smith  in  effect  asks  the 
frankly  technical  question:  How  may  the  labor 
of  the  nation  he  so  applied  that  the  dividend  will 
he  as  large  as  possible,  and  that  the  quotient  for 
each  sharer  may  thus  amount  to  a  sufficient  supply 
of  the  fundamental  material  necessities? 

In  this  question  there  is  no  suggestion  nor 
implication  of  the  attitude  of  aloofness  toward 
the  larger  questions  of  social  or  moral  science 
which  later  became  characteristic  of  economic 
theory  and  practice.  There  is  no  hint  that  the 
question  can  be  answered  independently  of  the 
preliminary  analysis  of  the  moral  world ;  nor  that 
answering  the  question  about  the  commissary 
department  of  life  solves  all  the  essential  prob- 
lems of  life.  On  the  contrary,  the  question  which 
The  Wealth  of  Nations  proposes  is  as  frankly 
special  and  technological  as  though  it  had  been: 
How  may  the  sewage  of  Great  Britain,  that  now 
goes  to  zvaste,  he  saved  and  made  valuahle  in  fer- 
tilising agricidtural  land? 

While  the  two  questions  are  far  from  co- 
ordinate, Adam  Smith's  philosophy  no  more 
thought  of  making  the  question  dealt  with  in  The 


Wealth  of  Nations  the  central  question  of  society, 
than  it  would  have  proposed  to  put  the  question 
of  utilizing  sewage  in  that  position.  On  the  con- 
trary, the  dependence  of  thought  in  his  system 
was  implicitly  this :  Human  beings  have  a  moral 
or  social  destiny  to  work  out.  Nations  are  units  of 
effort  in  accomplishing  that  destiny.  The  people 
who  compose  a  nation  have  the  task  of  find- 
ing out  appropriate  ends  of  life,  of  learning  what 
are  the  conditions  which  must  be  satisfied  in 
reaching  those  ends,  and  of  realizing  the  ends  by 
getting  control  of  the  necessary  means.  As  the 
life-problem  of  individuals  and  nations  presented 
itself  to  Adam  Smith's  mind,  it  was,  as  we  shall 
later  see  more  in  detail,  first,  a  problem  of  re- 
ligion ;  second,  a  problem  of  ethics ;  third,  a  prob- 
lem of  civil  justice;  fourth,  a  problem  of  economic 

Without  stopping  to  take  issue  with  this  classi- 
fication, it  is  enough  for  our  purpose  to  insist 
upon  the  main  fact  that  the  classification,  crude 
as  it  is,  and  prescribed  indeed  by  the  traditions  of 
the  chair  of  moral  philosophy  from  which  Smith 
taught  it,  puts  the  actual  interests  of  life  more 
nearly  in  their  essential  relations  than  they  were 
afterward  in  economic  theory  until  the  sociolo- 
gists began  to  move  for  a  restoration  of  the  bal- 
ance.    Adam  Smith  turned  from  study  of  social 


life  in  its  largest  relations  to  intensive  study  of 
one  of  the  techniques  by  which  the  processes  of 
life  are  sustained.  If  economic  theory  remains  in 
the  position  of  logical  subordination  which  it 
occupied  in  Adam  Smith's  system,  it  is  an  indis- 
pensable portion  of  social  philosophy.  In  so  far 
as  it  occupies  a  different  position,  unless  it  can 
justify  itself  as  a  larger  moral  philosophy,  it  does 
just  so  much  to  confuse  and  disturb  the  theory 
and  practice  of  life. 

We  shall  see,  as  we  analyze  the  later  econo- 
mists from  the  standpoint  of  this  essay,  that  two 
things  are  true:  first,  the  so-called  classical 
economists  of  England  gave  an  emphasis  and  a 
proportion  to  economic  theory  that  wrenched  it 
arbitrarily  from  the  just  position  which  it  occu- 
pied in  Adam  Smith's  philosophy;  second,  the 
German  economists,  during  the  greater  part  of 
the  nineteenth  century,  followed  traditions  which 
in  spirit,  if  not  in  form  and  detail,  were  much 
nearer  to  Adam  Smith  than  to  the  later  classical 
English  economists.  The  latter  succeeded  in 
overcasting  the  whole  social  sky  with  their  science, 
and  made  it  '^dismal,"  by  temporarily  obscuring 
the  more  fundamental  science  in  which  the  eco- 
nomic theory  of  Adam  Smith  had  its  setting. 

To  repeat,  the  most  significant  movement  in 
thought  during  the  present  generation  is  a  return 


to  a  basis  of  moral  philosophy,  in  perspective 
rather  than  in  content  like  that  upon  which  Adam 
Smith  rested  his  economic  reasonings.  To  detect 
the  serious  mistake,  and  to  recover  the  essential 
value  of  nineteenth-century  economics,  it  is  neces- 
sary to  make  as  clear  as  possible  the  contrast 
between  the  true  perspective  of  economic  theory 
as  a  portion  of  moral  science,  as  it  was  recog- 
nized by  Smith,  and  the  fallacious  aspect  of  eco- 
nomics, as  both  corner-stone  and  key-stone  of 
moral  science,  in  classical  theory,  culminating 
in  John  Stuart  Mill.  It  should  be  added  that, 
while  Mill  represents  the  extreme  aberration  of 
economic  theory  from  its  proper  center  in  moral 
science,  it  would  not  be  far  from  the  facts  to  say 
that  his  chapter  on  the  future  of  the  laboring 
classes  marks  the  beginning  of  the  return  to 
Adam  Smith's  basis.^ 

In  order  to  locate  more  distinctly  the  point  of 
departure  from  which  Adam  Smith  started,  it  is 
well  to  make  a  careful  note  of  what  is  involved 
in  his  own  general  outline  of   The   Wealth  of 

^  See  J.  S.  Mill,  Political  Economy,  Book  IV,  "Influence  of 
the  Progress  of  Society  on  Production  and  Distribution."  These 
chapters,  rather  than  the  single  one  referred  to,  may  be  called 
the  watershed  between  the  abstract  and  the  sociological  tend- 
encies in  British  political  economy. 

I  shall  elsewhere  discuss  the  title  of  Cliffe  Leslie  to  some 
of  this  credit. 


Nations.  It  demonstrates  beyond  a  doubt  that  we 
described  it  in  a  way  that  he  would  have  accepted, 
if  the  present  meaning  of  the  phrase  had  been 
explained  to  him,  when  we  called  it  a  purely 
technological  inquiry  which  had  its  methodologi- 
cal place  as  a  subordinate  division  in  his  whole 
social  philosophy. 

Having  observed  that  the  proportion  of  prod- 
ucts to  the  number  of  persons  among  whom 
they  must  be  divided  tells  the  story  of  better  or 
worse  supply  of  necessaries  and  conveniences,^ 
Smith  adds  that  in  general  this  proportion  must 
be  regulated  in  every  nation  by  two  different  cir- 
cumstances : 

First,  by  the  skill,  dexterity,  and  judgment 
with  which  its  labor  is  applied ; 

Second,  by  the  proportion  between  the  num- 
ber of  those  who  are  employed  in  useful  labor 
and  those  who  are  not  so  employed. 

This  word  "useful,"  or  its  synonym  "produc- 
tive," is  very  innocent  in  the  early  stages  of 
economic  argument.  Smith  probably  had  little 
premonition  of  the  Pandora's  box  of  theoretic 
evils  that  it  contained."^  We  need  not  hesitate  to 
"P.  I. 

'' a.  J.  S.  Mill,  Political  Economy,  Book  I,  Chap.  II,  and 
especially  Chap.  Ill,  Sec.  i,  on  distinction  between  "produc- 
tive" and  "non-productive"  labor.  Also  Mill's  essay  on  the 
same  subject. 


accept  it  here  just  as  he  meant  it.  In  a  word,  it 
is  a  very  simple  proposition  that,  other  things 
being  equal,  that  nation  will  have  the  most  prod- 
ucts to  consume  which  contains  the  largest  pro- 
portion of  people  who  make  themselves  "useful" 
in  producing  consumable  products.  He  did  not 
mean  to  imply  that  this  was  the  only  way  of 
being  "useful"  in  a  larger  sense. 

Smith  further  observes  in  this  connection  that 
the  abundance  or  scantiness  of  material  goods 
seems  to  depend  more  on  the  former  condition 
than  on  the  latter,  and  his  reason  for  thinking 
so  is  contained  in  the  contrast  between  the  savage 
tribe,  in  which  each  individual  is  compelled  by  the 
rigors  of  life  to  employ  himself  directly  or  indi- 
rectly in  food-getting,  yet  poverty  is  universal, 
and  the  civilized  nation,  in  which  many  live  in 
comparative  idleness,  while  wealth  is  relatively 

The  first  hook  of  The  Wealth  of  Nations  is 
devoted  to  analysis  of  the  above  fact;  viz.,  to 
search  for  the  causes  of  this  improvement  in  the 
productive  powers  of  labor,  "and  the  order,  ac- 
cording to  which  its  produce  is  naturally  \^sic'\ 
distributed  among  the  different  ranks  and  con- 
ditions of  men  in  the  society." 

With  something  of  Casca's  jealousy,  we  might 
stop  to  inquire:    What  should  be  in  this  "natur- 


ally"?  It  is  a  word  which,  of  course,  takes  us 
back  to  the  Physiocrats,  and  it  presently  lends 
itself  to  all  the  illusions  of  liberty  in  the  classical 
conceptions  of  free  competition;  but  that  will 
also  come  later.  Whether  Smith  was  right  or  not 
in  his  assumptions  of  the  particular  natural  pro- 
cesses underneath  the  visible  social  processes,  he 
was  attempting  in  this  first  book  to  carry  out  an 
inquiry  that  was  as  purely  technological,  as  dis- 
tinguished from  moral,  as  an  inquiry  by  bacteri- 
ologists into  the  differences,  and  the  reasons  for 
the  differences,  between  the  water  of  a  mountain- 
stream  and  that  of  a  millpond. 

Economic  theory  later  became  involved  in 
moral  assumptions,  analogous  with  questions 
about  the  title  to  property  in  the  stream  or  the 
millpond.  We  shall  see,  not  only  that  those 
assumptions  begged  fundamental  questions  in 
sociology,  but  that  theoretical  and  practical  econo- 
mists of  the  classical  school  even  tabooed  the  dis- 
cussion of  those  assumptions.  The  prohibition 
was  almost  as  rigid  as  the  exclusion  of  the  sub- 
ject of  slavery  from  debate  in  Congress  for  the 
last  decade  before  the  Civil  War.  Thus  the  classi- 
cal economics,  in  defiance  of  all  logic,  forgot  its 
strictly  technological  character,  and  assumed  the 
function  of  an  arbiter  of  morals.  This  central 
fact  in  British  economic  history  makes  it  neces- 


sary  for  everyone  who  is  concerned  with  current 
moral  questions  to  be  thoroughly  familiar  with  the 
disturbing  influences  which  the  classical  economics 
exerted  upon  investigation  of  moral  questions. 

At  this  point  I  merely  repeat  that  economic 
theory,  as  represented  by  Adam  Smith,  was 
strictly  amenable  to  the  logical  demands  of  moral 
theory  in  the  large.  Our  present  task  is  to  make 
this  initial  fact  perfectly  plain  by  analyzing  the 
technological  character  of  Smith's  work.  With 
this  analysis  as  a  background  it  will  be  possible 
to  make  clear  the  unconscious  slipping  of  classi- 
cal economic  theory  from  the  necessary  moral 

In  the  second  book  Smith  treats  "of  the  nature 
of  capital  stock,  of  the  manner  in  which  it  is 
gradually  accumulated,  and  of  the  different  quan- 
tities of  labor  which  it  puts  into  motion,  accord- 
ing to  the  different  ways  in  which  it  is  employed."^ 

The  reasons  for  considering  this  subject  are, 
in  Smith's  own  words,  that  ''the  number  of  useful 
and  productive  laborers  is  everywhere  in  propor- 
tion to  the  quantity  of  capital  stock  which  is 
employed  in  setting  them  to  work,  and  to  the 
particular  way  in  which  it  is  so  employed."  ^ 

Again,  this  inquiry,  in  the  form  proposed  by 
Smith,  is  as  strictly  technological  as  the  question 

«Pp.  2,  3.  'P.  2. 


whether  a  lock  canal  will  in  the  end  furnish  the 
best  and  cheapest  transportation  through  the  Isth- 
mus of  Panama.  No  one  would  today  be  unable 
to  see  that  the  latter  question  belongs  in  a  class 
entirely  apart,  and  with  an  entirely  different  rank 
in  the  moral  scale,  from  the  question  whether  the 
United  States  government  had  dealt  justly  with 
the  former  sovereigns  of  Panama,  or  the  ques- 
tions that  will  arise  later  about  justice  in  the  rules 
to  be  made  for  use  of  the  canal  by  foreign 
nations.  We  should  never  think  of  confusing 
these  engineering  questions,  or  of  supposing  that 
the  men  who  plan  the  construction  of  the  canal 
are  the  authorities  who  should  be  allowed  to  dic- 
tate the  international  law  code  which  should  gov- 
ern the  use  of  the  canal.  Yet  something  very  like 
these  impossible  alternatives  has  been  the  implicit 
claim  of  classical  economics.  So  far  as  the  soci- 
ologists are  related  to  the  economists  at  all,  it  is 
not  in  questioning  their  competence  to  take  care 
of  their  own  problems,  any  more  than  the  inter- 
national lawyers  would  claim  competence  to  solve 
the  proper  problems  of  the  engineers.  The  con- 
tention of  the  sociologists  with  reference  to  the 
economists  is  that  the  function  of  the  latter  is 
more  nearly  analogous  with  that  of  the  engineer 
than  with  that  of  the  legislator,  while  the  sociolo- 
gist has  a  brief  for  the  other  interests,  over  and 


above  the  technological,  which  the  legislator  is 
bound  to  consider. 

We  may  call  attention,  in  passing,  to  the  squint 
toward  the  Malthusian  problem,  and  the  "wage- 
fund  theory,"  which  our  knowledge  of  later  de- 
velopments enables  us  to  detect  in  the  formulation 
of  the  last  chapter  of  Book  II. 

Book  III  attempts  to  explain  historically  the 
different  plans  which  nations  have  adopted  in 
applying  labor  power,  and  the  reasons  why  the 
different  policies  have  had  different  degrees  of 
success  in  securing  a  relatively  large  output,  and 
particularly  the  reasons  why  European  policy 
since  the  fall  of  the  Roman  Empire  has  inclined  in 
favor  of  the  urban  rather  than  the  rural  types  of 
industry.  This  again  is  a  strictly  analytical  in- 
quiry. It  is  logically  analogous  with  an  investi- 
gation of  the  policy  of  the  United  States  since 
the  adoption  of  the  Constitution  with  reference  to 
public  lands ;  or  a  comparison  of  our  public  policy 
toward  rivers  and  harbors,  with  our  treatment 
of  railways,  and  the  actual  effects  of  the  same. 
All  this,  in  either  case,  would  furnish  important 
data  for  problems  of  morals.  In  so  far  as  effects 
upon  persons,  rather  than  upon  things,  could  be 
traced  in  either  case,  the  respective  policies  would 
come  into  the  moral  realm. 

The    friction   between    economic    and    moral 


theory  has  always  been  generated  in  part  by  the 
assumption  that  the  poHcy  which  was  judged  to 
be  profitable  economically  must  for  that  reason 
alone  be  accepted  as  justified  morally.  Whenever 
this  assumption  has  had  effect  in  any  degree,  the 
tendency  has  been  to  obscure  the  boundary  lines 
between  economics  as  a  technology,  and  moral 
philosophy,  or  sociology,  as  discoverer  of  a  stand- 
ard of  life  to  which  economic  technology  must  be 

In  Book  IV  Smith  attempts  to  explain  the 
different  economic  theories  which  have  been  con- 
sciously or  unconsciously  behind  the  different 
policies  discussed  in  Book  III. 

This  purely  historical  inquiry,  of  a  different 
sort  from  that  pursued  in  Book  III,  may  be  com- 
pared with  a  history  of  political,  or  philosophic, 
or  religious  creeds.  The  facts  in  either  case  all 
have  a  certain  ultimate  value  in  showing  what  the 
political,  or  philosophic,  or  religious  creed  of 
living  men  should  be.  Primarily,  however,  they 
are  mere  exhibits  of  the  actual  workings  of  men's 
minds  in  the  past.  They  show  the  conceptions 
by  which  they  were  influenced.  They  have  no 
moral  value  for  us  whatsoever,  except  as  we 
have  some  moral  criterion  by  which  to  judge 
whether,  or  in  what  sense  and  degree,  either  of 
these  previous  creeds  correctly  interpreted  the 
essential  meanings  of  life. 


In  other  words,  there  is  no  more  moral  quality 
or  force  in  a  mere  exhibit  of  what  men  in  the  past 
have  believed  about  economics,  than  there  is  in 
their  beliefs  about  ornaments,  or  weather  signs, 
or  geography.  The  history  either  of  economic 
processes  or  of  economic  theories  furnishes  some 
of  the  material  for  a  theory  of  morals.  It  does 
this  because  both  economic  theories  and  economic 
processes  perforce  deal  more  or  less  with  persons, 
as  well  as  with  wealth.  In  so  far  as  economic 
theories  or  processes  have  to  do  with  persons,  they 
are  to  that  extent  positive  or  negative  judgments 
of  those  values  which  are  lodged  in  persons;  in 
other  words,  of  moral  values.  So  long  as  we  are 
considering  such  past  judgments  merely  as  facts, 
accounting  for  economic  action,  the  inquiry  is  as 
strictly  technological  as  a  chemical  inquiry  into 
the  effects  of  alcohol,  for  instance,  upon  various 
physiological  conditions.  It  is  a  question  beyond 
the  competence  of  physiologist  or  chemist,  as 
such,  what  on  the  whole  should  be  the  policy  of 
nations  or  of  individuals  with  reference  to  the 
manufacture  and  use  of  alcohol.  So  far  as  Adam 
Smith  planned  his  inquiry  into  the  history  of  eco- 
nomic theory,  he  was  apparently  free  from  the 
confusion  which  sprang  up  later  about  the  bear- 
ings of  the  inquiry. 

In  the  fifth  and  last  hook  of  The  Wealth  of 
Nations  Smith  treats  of  the  revenues  of  the  state, 


as  distinguished  from  the  wealth  created  by  the 
labor  of  the  people  of  the  nation  and  held  by  them 
as  individuals.  This  again  is  a  subject  which, 
on  the  one  hand,  is  purely  a  matter  of  fact  as  to 
the  operation  of  a  certain  part  of  civic  machinery. 
On  the  other  hand,  it  borders  first  on  another 
department  of  technology,  viz.,  civic  adminis- 
tration, and,  second,  on  a  whole  realm  of  moral 
questions.  The  thought  of  the  nineteenth  cen- 
tury has  been  kept  seething  by  varieties  of 
opinions  about  the  bearing  which  purely  techni- 
cal and  material  aspects  of  the  situation  should 
have  upon  decisions  of  major  and  minor  moral 
questions  as  to  the  functions  of  government,  and 
the  choice  between  this  and  that  scheme  of 
administration,  in  discharging  the  functions. 

In  his  announcement  of  this  fifth  book  Smith 
shows  very  plainly  his  moral  sympathies.  For 
the  first  time  he  distinctly  proposes  to  discuss  the 
"ought"  of  the  case.  He  thereby  has  recourse  to 
his  larger  moral  philosophy.  Our  present  dis- 
cussion is  in  no  sense  a  challenge  of  the  propriety 
of  this  last  phase  of  Smith's  argument.  On  the 
contrary,  in  his  main  scheme  of  method  he  is  to 
be  held  up  as  a  model  of  the  scientific  order  of 
procedure  in  arriving  at  judgments  of  morals. 
He  is  at  the  same  time  a  striking  contrast  with 
some  of  his  successors.    He  first  derived  his  con- 


ception  of  life  in  the  large.  Then  he  analyzed 
one  of  the  great  divisions  of  activity  within  the 
whole  scheme  of  life.  On  this  basis  he  attempted 
to  decide  what  human  programs  should  be  adopted 
with  reference  to  the  wealth  element  among 
human  interests.  This  order  and  spirit  of  proced- 
ure, enlarged  and  specialized,  is  the  methodology 
for  which  the  modern  sociologists  are  contending. 
The  economic  theory  and  practice  of  the 
nineteenth  century  in  England,  at  least  until  the 
younger  Mill's  time,  tended  farther  and  farther 
away  from  Smith's  standard.  The  history  of  this 
apostasy  is  one  of  the  most  instructive  approaches 
to  a  sane  and  convincing  sociology. 

Before  we  set  out  upon  the  work  of  justify- 
ing this  proposition,  it  may  be  well  to  indicate 
more  precisely  the  point  of  view  from  which  we 
are  to  judge  economic  theory. 

In  a  word,  sociological  analysis,  so  far  as  it 
has  gone  at  present,  has  reduced  human  life  on  its 
psychical  side  to  evolution  of  types  of  interests, 
evolution  of  types  of  individuals,  and  evolution 
of  types  of  association  between  individuals.  With- 
out injecting  any  .a-priori  interpretation  whatso- 
ever into  these  phenomena,  we  find  that  they 
are  the  elements  in  which  psychology  and  soci- 
ology and  ethics  find  their  ultimate  problems. 
Moral  philosophy,  whether  it  is  the  conscious  and 


deliberate  system  in  the  academic  mind,  or  the 
instinctive  presumptions  back  of  the  catch-as- 
catch-can  practice  of  the  man  on  the  street,  is  a 
reckoning  with  these  primary  facts  in  the  human 
lot.  Considered  as  activity  alone,  without  intro- 
ducing valuations  of  any  sort,  human  life  is  at 
last  the  evolution  of  types  of  interest,  and  types 
of  individuals,  and  types  of  interrelation  between 
individuals.  Each  term  in  this  analysis  is  an 
indefinitely  inconstant  variant  of  each  of  the  other 
terms.  That  is,  interests  and  individuals  and 
associations  are  reciprocating  terms  in  a  widening 
and  ascending  series  of  causes  and  effects.  The 
evolution  of  interests  and  individuals  and  associa- 
tions is  thus  a  more  or  less  coherent  process ;  and 
it  is  unsafe  to  assume  that  we  have  found  the 
meaning  of  any  greater  or  lesser  part  of  the  pro- 
cess until  we  have  made  out  the  whole  story  of 
its  connections  with  all  the  rest  of  the  process. 
Every  moral  philosophy  is  presumptively  a  science 
of  this  whole  process  of  moral  evolution.  Soci- 
ology, in  its  largest  scope,  and  on  its  methodo- 
logical side,  is  merely  a  moral  philosophy 
conscious  of  its  task,  and  systematically  pursuing 
knowledge  of  cause  and  effect  within  this  process 
of  moral  evolution. 

The    inevitable    a    priori   with    which    every 
attempt  at  knowledge  must  begin  is,  in  this  case, 


a  judgment  of  the  question:  On  the  whole,  is  it 
better  to  have  faith  in  this  process  of  moral  evo- 
lution and  to  enlist  in  it  for  all  we  are  worth,  or 
to  distrust  it  and  desert  it  or  resist  it?  Assum- 
ing that  our  moral  philosophy  or  sociology  has 
chosen  the  former  alternative,  then  our  task  of 
interpretation  is  to  explain  every  human  motion 
or  collection  of  motions  by  all  that  we  can  find 
out  of  its  functional  meaning  within  the  whole 
cosmos  of  movements  which  make  up  the  process 
of  moral  evolution.  Valuations  enter  into  this 
supreme  attempt  to  understand,  as  into  all  the 
lesser  attempts  to  understand,  from  the  begin- 
nings of  infant  reflection.  The  form  of  the  valua- 
tion always  is :  What  is  the  worth  of  the  part  of 
the  process  in  question,  as  related  to  all  the  rest 
of  the  process  which  can  be  brought  into  calcula- 

Applying  these  generalities  to  the  case  in  hand, 
the  question  which  the  sociologist  is  always  im- 
plicitly asking  of  the  economist  is:  To  what 
extent  are  you  making  your  analyses  and  passing 
your  valuations  of  economic  activities  as  though 
they  were  bounded  by  the  wealth  interest  alone, 
and  to  what  extent  do  your  analyses  and  valua- 
tions take  account  of  the  whole  process  of  moral 
evolution  within  which  the  wealth  interest  is  an 
incident?     Economic    theory,    in    England    and 


America,  throughout  the  nineteenth  century,  made 
the  wealth  interest  unduly  prominent  in  the  pro- 
cess of  moral  evolution,  and  thereby  introduced 
confusion  into  the  whole  scale  of  moral  valuation. 
The  present  essay  makes  a  beginning  of  showing 
this  in  detail.  The  principal  methodological  thesis 
which  the  exhibit  is  to  support  is  that  a  sufficient 
interpretation  of  life  to  be  a  reliable  basis  for 
social  programs  must  express  economic  relations 
at  last  in  terms  of  the  whole  moral  process.  This 
is  true  of  political  economy  in  so  far  as  it  purports 
to  be  more  than  a  technology  of  things.  To  the 
degree  in  which  political  economy  proposes  to 
establish  norms  for  evaluating  the  activities  of 
persons,  it  must  answer  to  the  whole  moral  pro- 
cess in  which  all  the  activities  of  persons  derive 
their  meaning. 



Having  thus  sketched  the  argument  of  this 
book,  I  proceed  to  develop  it  somewhat  in  detail. 
As  a  further  preliminary,  I  take  the  precaution 
to  state  specifically  that  I  am  not  trying  to  do  over 
again  either  of  various  things  that  have  already 
been  done  by  students  of  Adam  Smith.  This  dis- 
claimer may  be  expanded  in  the  form  of  a  brief 
account  of  the  sources  of  our  knowledge  of  Adam 

I.     This  book  is  not  a  biography  of  Adam 

Until  1895  the  chief  source  of  information, 
accessible  to  the  general  reader,  about  Adam 
Smith,  outside  of  his  published  works,  was  the 
brief  and  rather  dilettantish  account  written  by 
Dugald  Stewart.  This  paper  was  read  by 
Stewart  before  the  Royal  Society  of  Edinburgh 
on  two  evenings  of  1793.  It  was  published  under 
the  title,  Account  of  the  Life  and  Writings  of 
Adam  Smith,  with  additional  notes,  in  18 10.  It 
is  now  to  be  found  in  Hamilton's  edition  of  the 
Complete  Works  of  Dugald  Stewart,  Vol.  X; 
also  in  the  same  volume  of  the  "Bohn  Library" 



which  contains  Smith's  Theory  of  Moral  Senti- 

In  1895  M^-  Jol^i^  R^^  pubHshed  a  biography 
which  appeared  to  have  exhausted  the  visible  sup- 
ply of  information  about  Adam  Smith  the  man.^ 

If  the  additions  of  fact  were  not  extensive, 
there  were  certainly  corrections  of  interpretation, 
partly  by  the  help  of  Cannan's  **find"  ^  in  the 
briefer  biography  by  Hirst  which  appeared  nine 
years,  later. ^  If  we  may  characterize  the  attitude 
of  Hirst,  it  is  that  of  a  confessed  admirer  of 
Smith,  with  a  desire  to  represent  him  sympatheti- 
cally and  fairly,  not  merely  as  the  author  of  two 
or  three  books,  nor  as  a  philosopher,  but  as  a  man 
among  men.  The  two  closing  pages  draw  a  vivid 
and  rather  effective  pen-picture.  The  argument 
of  the  book  is  compressed  into  the  final 
paragraph : 

Of  his  contemporaries,  the  nearest  perhaps  in  spirit  are 
Turgot  and  the  younger  Burke,  the  Burke  of  the  Ameri- 
can Revolution,  and  of  Free  Trade  and  of  Economical 
Reform.  But  Burke  and  even  Turgot  were  in  a  certain 
sense  men  of  the  past.  Though  their  radiance  can  never 
fade,  their  influence  wanes.  But  Smith  has  issued  from 
the    seclusion    of    a    professorship    of    morals,    from    the 

^John  Rae,  Life  of  Adam  Smith  (London,  449  pages). 
"^  Cf.  below,  p.  59. 

^Francis  W.  Hirst,  Adam  Smith  (London,  1904;  240 


drudgery  of  a  commissionership  of  customs,  to  sit  in  the 
council-chamber  of  princes.  His  word  has  rung  through 
the  study  to  the  platform.  It  has  been  proclaimed  by  the 
agitator,  conned  by  the  statesman,  and  printed  in  a 
thousand  statutes. 

The  purpose  of  the  present  inquiry  makes  no 
demand  for  biographical  evidence  beyond  that 
which  these  sources  contain. 

2.  This  book  is  not  an  attempt  to  locate 


That  task  has  been  undertaken  and  per- 
formed, with  a  large  measure  of  success,  by 

In  an  introduction  of  fourteen  pages,  Has- 
bach  analyzes  Adam  Smith's  fundamental  philo- 
sophical conceptions,  and  in  the  body  of  his 
work  he  traces  the  lines  of  relationship  between 
the  different  divisions  of  Smith's  philosophy  and 
his  predecessors. 

In  general  philosophy,  he  assigns  Smith  to 
the  school  of  Shaftesbury  and  Hartley,  and  in- 
terprets him  also  in  connection  with  Butler, 
Hutcheson,  and  Hume. 

*  Untersuchungen  iiber  Adam  Smith,  und  die  Entwicklung 
der  politischen  Oekonomie,  von  Dr.  Wilhelm  Hasbach,  ausser- 
ordentlichen  Professor  an  der  Universitat  Konigsberg 
(Leipzig,    1891  ;  440  pages).     Cf.  above,  p.  5. 


In  political  economy,  Hasbach  draws  lines  of 
relationship  chiefly  between  Smith  and  the  suc- 
cession of  writers — Hugo  Grotius,  Pufendorf, 
Christian  Wolff,  Hutcheson,  and  the  Physio- 

In  the  science  of  finance,  Hasbach  finds  it 
more  difficult  to  trace  Smith's  direct  antecedents. 
He  finds  himself  embarrassed  by  the  lack  of  an 
adequate  history  of  the  science  of  finance,  and 
refers  to  the  bibliographical  suggestions  in  the 
treatment  of  the  subject  by  Cossa,  Roscher, 
Stein,  Umpfenbach,  and  Wagner.^  He  declines 
to  attempt  a  sketch  of  the  history  of  finance,  but 
discusses  instead  these  questions :  first.  How 
shall  we  estimate  what  Smith  did  in  the  science 
of  finance  as  compared  with  Justi,  who  preceded 
him  in  Germany,  but  with  whose  work  Smith 
was  probably  not  acquainted?  and,  second.  How 
shall  we  compare  Smith's  work  with  that  of 
those  predecessors  from  whose  writings  he  pro- 
duced a  new  science? 

In  general  methodology,  Hasbach  relates 
Adam  Smith  to  three  previous  tendencies,  viz. : 
(i)  the  exponents  of  deduction — Descartes, 
Thomas  Hobbes,  and  the  Physiocrats;  (2)  the 
exponents  of  induction — Bacon,  Hutcheson, 
Hume,  and  Montesquieu;    (3)   the  combination 

^  Loc.  cit.,  p.  241. 


of  deduction  and  induction  in  the  system 
of  James  Stewart.  Thereupon  follows  a 
brief  examination  of  Smith's  own  methodology. 
Hasbach's  book  is  an  extremely  helpful  propae- 
deutic for  the  study  of  Smith,  but  our  inquiry 
takes  a  quite  different  direction.^ 

3.  This  essay  is  not  an  attempt  to  draw  a 


This  has  been  done  in  one  notable  case  by 

Of  Oncken's  monograph  it  must  be  said  that 
it  is  of  inferior  importance  to  our  inquiry,  not 
merely  because  our  search  takes  a  different  direc- 
tion, but  because  no  investigation  of  the  type 
represented  by  Oncken's  essay  can  be  of  first- 
rate  value.  It  is  a  comparison  between  two  sys- 
tems of  thought,  both  of  which  have  performed 
their  chief  service  in  the  world  by  furnishing  the 

'  Bonar,  Philosophy  and  Political  Economy,  Chap.  VIII, 
makes  a  similar  attempt  to  place  Smith  in  the  philosophic 

''Adam  Smith  und  Immanuel  Kant;  der  Einklang  und  das 
Wechselverhdltniss  ihrer  Lehren  iiber  Sitte,  Staat  und  Wirth- 
schaft.  Dargelegt  von  Dr.  August  Oncken,  Docent  der  Staats- 
wirthschaft  an  der  K.  K.  Hochschule  fiir  Bodenculture  zu 
Wien.  Erste  Abtheilung,  "Ethik  und  Politik"  (Leipzig,  1877; 
276  pages).     Cf.  above,  p.  5. 


stimulus  for  maturer  thought.  Oncken's  per- 
formance is  not  wholly  unlike  a  solemn  compari- 
son of  the  architecture  of  two  castles  in  the  air. 
What  matters  it  how  we  decide?  While  we  are 
reaching  our  conclusions  the  castles  have  vanished 
and  their  architecture  has  no  meaning.  De- 
tached systems  of  thought,  set  over  against  each 
other  solely  as  rival  exhibits  of  the  handiwork  of 
the  mind,  are  merely  archaeological  specimens 
almost  as  soon  as  they  are  turned  out  of  their 
authors'  brains.  How  one  system  compares  with 
another  in  mere  static  self-consistency  is  a  prob- 
lem only  a  trifle  higher  in  the  scale  of  impor- 
tance than  the  question  how  different  types  of 
pottery  compare  with  each  other.  Smith  or  Kant 
or  any  other  philosopher  is  of  general  interest 
only  as  a  factor  in  the  whole  system  of  factors 
that  work  together  in  the  human  advance  from 
ignorance  to  knowledge. 

Oncken  reaches  a  conclusion  to  which  the  evi- 
dence will  hardly  carry  less  sanguine  readers.  He 
expects  to  be  taken  seriously  when  he  sums  up  his 
estimate  of  both  Kant  and  Smith  in  a  description 
which  would  exactly  fit  the  "Socialists  of  the 
Chair,"  of  the  date  at  which  he  wrote !  ^    Without 

*  His  resume  of  the  argument  is  in  these  words :  Der 
Staat  Smith's  ist  der  namliche  wie  der  Staat  Kant's.  Beide 
Lehren,    im    Einzelnen   luckenhaft,   bilden   doch   in   ihren   Zu- 


extending  the  generalization  to  Kant,  we  have 
already  noticed,  and  we  shall  have  occasion  to 
observe  still  further,  that  Smith  uttered  opinions 
which,  abstracted  from  the  circumstances, 
might  easily  be  interpreted  as  onsets  of  social- 
ism. It  is  even  conceivable  that  his  views  might 
have  developed  with  the  progress  of  events,  so 
that,  if  he  had  lived  until  the  third  quarter  of  the 
nineteenth  century,  his  political  opinions  might 
have  been  more  like  Adolph  Wagner's  than  Her- 
bert Spencer's.  When  Oncken  goes  beyond  that 
and  represents  Smith  as  holding  a  definitely 
thought-out  program  of  the  state,  radically  con- 

sammenhalte  einen  einzigen  vollstandigen  Gedankenbau,  der 
nicht  bios  der  edelste  Ausdruck  ihres  Zeitalters  ist,  sondern 
der  in  der  Hauptsache  diese  Zeit  sogar  weit  iiberragt.  Ent- 
gegen  der  damals  tonangebenden  individualistischen  Auf- 
klarungsphilosophie,  welche  jede  Autoritat  und  jede  zwangs- 
massige  Verpflichtung  an  das  Gemeinwesen  abwies,  ist  der 
Staat  Smith's  wie  derjenige  Kant's  der  moderne  Staat  der 
allgemeinen  Wehrpflicht  und  des  Schulzwanges,  ja  er  be- 
schrankt  sich  namentlich  bei  Smith  nicht  auf  die  Erhaltung 
des  starren  Rechtszustandes,  sondern  auch  die  positive  Wohl- 
fahrts-  und  Wirthschaftspflege  sowie  die  Interessen  der  Volks- 
veredlung  werden  in  seine  Aufgabe  hereingezogen.  Mit  einem 
Worte,  es  ist  der  lebendige,  geistesmachtige  Culturstaat,  zu 
welchem  das  wirthschaftliche  Denken  unserer  Tage  wie  aus 
der  Verbannung  in  die  Heimath  zuriickkehrt,  nachdem  ihm  die 
staatlose  Begriffswelt  der  Manchesterschule  und  des  gesamm- 
ten  politischen  Radikalismus  unertraglich  geworden  ist." 
{Loc.  cit.,  p.  276.) 


trasted  with  that  of  the  Manchester  School,  the 
sobriety  of  his  judgment  ceases  to  be  impressive. 

4.  This  book  is  not  an  attempt  to  justify 

THE     CONTENT     OF     AdAM     SmITH's      MORAL 

The  essential  matter  is  not  what  he  thought 
about  the  particular  nature  of  moral  relations, 
but  that  he  conceived  of  human  society  as  sub- 
ject to  moral  law  of  some  sort,  and  of  this  moral 
law  as  more  authoritative  over  the  members  of 
society  collectively  and  severally  than  the  pre- 
cepts of  prudence.  It  is  necessary  to  exhibit  at 
some  length  the  evidence  on  which  this 
proposition  rests. 

The  chief  witness  on  the  subject  of  Adam 
Smith's  general  moral  system  is  Mr.  Millar,  once 
a  pupil  of  Smith,  later  professor  of  law  in  the 
University  of  Glasgow,  and  an  intimate  friend 
of  Smith  until  his  death.  I  quote  Millar  as  re- 
ported by  Dugald  Stewart.^ 

About  a  year  after  his  appointment  to  the  Pro- 
fessorship of  Logic,  Mr.  Smith  was  elected  to  the  Chair 
of  Moral  Philosophy.  His  course  of  lectures  on  this 
subject  was  divided  into  four  parts.  The  first  contained 
Natural  Theology;  in  which  he  considered  the  proof  of. 
the  being  and  attributes  of  God,  and  of  those  principles 
of    the    human    mind    upon    which    religion    is    founded. 

^Account,  etc.   (Bohn  ed.),  p.  xvii. 


The  second  comprehended  Ethics,  strictly  so  called,  and 
consisted  chiefly  of  the  doctrines  which  he  afterwards 
published  in  his  Theory  of  Moral  Sentiments.  In  the 
third  part,  he  treated  at  more  length  that  branch  of -moral- 
ity which  related  to  justice,  and  which  being  susceptible 
of  precise  and  accurate  rules,  is  for  that  reason  capable 
of  a  full  and  particular  explanation. 

Upon  this  subject  he  followed  the  plan  that  seems  to 
be  suggested  by  Montesquieu;  endeavoring  to  trace  the 
gradual  progress  of  jurisprudence,  both  public  and  pri- 
vate, from  the  rudest  to  the  most  refined  ages,  and  to 
point  out  the  effects  of  those  arts  which  contribute  to 
subsistence,  and  to  the  accumulation  of  property,  in  pro- 
ducing correspondent  improvements  or  alterations  in  law 
and  government.  This  important  branch  of  his  labors  he 
also  intended  to  give  to  the  public;  but  this  intention, 
which  is  mentioned  in  the  conclusion  of  the  Theory  of 
Moral  Sentiments,  he  did  not  live  to  fulfil. 

In  the  last  part  of  his  lectures,  he  examined  those 
political  regulations  which  are  founded  not  upon  the 
principles  of  justice,  hut  that  of  expediency,  and  which 
are  calculated  to  increase  the  riches,  the  power  and  the 
prosperity  of  a  State.  Under  this  view,  he  considered  the 
political  institutions  relating  to  commerce,  to  finances,  to 
ecclesiastical  and  military  establishments.  What  he  de- 
livered on  these  subjects  contained  the  substance  of  the 
work  he  afterwards  published  under  the  title  of  An  In- 
quiry into  the  Nature  and  Causes  of  the  Wealth  of 

Of  the  first  part  of  the  course  little  is  known, 
and  that  little  may  easily  be  interpreted  rather  in- 
gloriously.      In   his   lifetime   these   disparaging 


opinions  were  not  silent.     They  seem  to  have 
fallen  early  out  of  tradition,  but  the  suggestion 
of  them  is  revived  by  Haldane.^^ 
He  remarks:  ^^ 

Of  what  Smith  taught  in  that  first  part  of  his  four- 
fold course  at  Glasgow  ....  we  have  no  authentic  rec- 
ord; but  there  is  abundant  internal  evidence  that  it  could 
not  have  been  anything  either  very  definite,  or  that  com- 
mitted him  very  deeply. 

He  then  broadly  hints  that  Smith  held 
theological  views  similar  to  Hume's,  but  did  not 
dare  to  divulge  them  in  a  Scotch  university.  Al- 
though evidence  is  lacking  that  Smith  was  made 
of  martyr  stuff,  Haldane's  innuendo  does  not 
seem  justified.  The  greater  probability  is  that 
Smith's  mind  was  relatively  indifferent  to  meta- 
physics, and  that  he  did  not  strongly  grip  the 
questions  which  the  philosophy  of  his  time  raised 
with  reference  to  that  substratum  of  philosophy. 
As  I  shall  argue  later,  he  shows  more  virile 
affinity  for  the  utilitarians  than  for  the  a-priori 
philosophers.      It   is  not  unlikely   that   the   real 

"Li/^  of  Adam  Smith,  by  R.  B.  Haldane,  M.P.  (London, 
1887)  ;  with  a  bibliography  by  John  P.  Anderson  of  the  British 
Museum;  i6i-}-x  pages.  The  bibliography  is  the  really 
valuable  portion  of  the  book. 

"P.  20. 


energy  of  his  thinking  springs  from  his  ethics 
rather  than  from  his  theology.^ ^ 

Turning  to  the  second  division  of  Smith's 
moral  philosophy,  or  ethics,  it  is  a  gymnastic 
feat  of  no  little  difficulty  to  put  ourselves  long 
enough  in  the  mental  attitude  of  Smith  and  his 
contemporaries  to  understand  the  quaint  classifi- 
cation which  served  their  purposes.  Although 
Dugald  Stewart  was  a  pupil  of  the  men  to  whom 
these  classifications  appealed,  he  evidently  had 
his  own  troubles  with  them.  At  the  same  time 
his  version  of  them  is  helpful.  I  quote  his  analy- 
sis before  speaking  of  the  treatise  to  which  it 
must  be  applied.^ ^ 

The  science  of  Ethics  has  been  divided  by  moderns 
into  two  parts ;  the  one  comprehending  the  theory  of 
Morals,  and  the  other  its  practical  doctrines.  The  ques- 
tions about  which  the  former  is  employed  are  chiefly  the 
two  following:  First,  by  what  principle  of  our  constitu- 
tion are  we  led  to  form  the  notion  of  moral  distinctions : 
— whether  by  that  faculty  which,  in  the  other  branches  of 

"  Hirst,  Adam  Smith,  Chap.  HI,  is  worth  consulting  on  this 
point.  Although  he  would  probably  have  resented  Haldane's 
slur,  if  it  had  been  in  his  mind  when  he  wrote,  he  throws 
something  into  that  side  of  the  scale.  A  faint  light  is  shed  on 
this  subject  by  Part  HI,  Chap.  V,  of  Theory  of  Moral  Senti- 
m,ents.     (Cf.  below,  p.  43,  and  also  pp.  53,  54.) 

"  D.  Stewart,  Account,  etc.,  of  the  Theory  of  Moral  Sen- 
timents, p.  xix. 


human  knowledge,  perceives  the  distinction  between  truth 
and  falsehood;  or  by  a  peculiar  power  of  perception 
(called  by  some  the  Moral  Sense)  which  is  pleased  with 
one  set  of  qualities  and  displeased  with  another? 

Secondly,  What  is  the  proper  object  of  moral  approba- 
tion? or,  in  other  words,  what  is  the  common  quality  or 
qualities  belonging  to  all  the  different  modes  of  virtue? 
Is  it  benevolence;  or  a  rational  self-love;  or  a  disposition 
(resulting  from  the  ascendency  of  Reason  over  Passion) 
to  act  suitably  to  the  different  relations  in  which  we 
are  placed?  These  two  questions  seem  to  exhaust  the 
whole  theory  of  Morals.  The  scope  of  the  one  is  to 
ascertain  the  origin  of  our  moral  ideas ;  that  of  the  other, 
to  refer  the  phenomena  of  moral  perception  to  their  most 
simple  and  general  laws. 

The  practical  doctrines  of  morality  comprehend  all 
those  rules  of  conduct  which  profess  to  point  out  the 
proper  ends  of  human  pursuit,  and  the  most  effectual 
means  of  attaining  them;  to  which  we  may  add  all  those 
literary  compositions,  whatever  be  their  particular  form, 
which  have  for  their  aim  to  fortify  and  animate  our  good 
dispositions,  by  delineations  of  the  beauty,  of  the  dig- 
nity, or  of  the  utility  of  Virtue. 

I  shall  not  inquire  at  present  into  the  justness  of  this 
division.  I  shall  only  observe,  that  the  words  Theory  and 
Practice  are  not,  in  this  instance,  employed  in  their 
usual  acceptations.  The  theory  of  Morals  does  not  bear, 
for  example,  the  same  relation  to  the  practice  of  Morals, 
that  the  theory  of  Geometry  bears  to  practical  Geometry. 
In  this  last  science  all  the  practical  rules  are  founded  on 
theoretical  principles  previously  established.  But  in  the 
former  science,  the  practical  rules  are  obvious  to  the 
capacities  of  all  mankind   [sic]  ;  the  theoretical  princioles 


form  one  of  the  most  difficult  subjects  of  discussion  that 
have  ever  exercised  the  ingenuity  of  metaphysicians 

According  to  Mr.  Hume,  all  the  qualities  which  are 
denominated  virtuous  are  useful  either  to  ourselves  or  to 
others,  and  the  pleasure  which  we  derive  from  the  view 
of  them  is  the  pleasure  of  utility.  Mr.  Smith,  without 
rejecting  entirely  Mr.  Hume's  doctrine,  proposes  another 
of  his  own,  far  more  comprehensive;  a  doctrine  with 
which  he  thinks  all  the  most  celebrated  theories  of 
morality  invented  by  his  predecessors  coincide  in  part, 
and  from  some  partial  view  of  which  he  apprehends  that 
they  have  all  proceeded. 

Of  this  very  ingenious  theory,  I  shall  endeavour  to  give 
a  short  abstract 

The  fundamental  principle  of  Mr.  Smith's  theory  is, 
that  the  primary  objects  of  our  moral  judgments  with 
respect  to  our  own  conduct  are  only  applications  to  our- 
selves of  decisions  which  we  have  already  passed  on  the 
conduct  of  our  neighbour.  His  work  accordingly  includes 
two  distinct  inquiries,  which,  although  sometimes  blended 
together  in  the  execution  of  his  general  design,  it  is 
necessary  for  the  reader  to  discriminate  carefully  from 
each  other,  in  order  to  comprehend  all  the  different  bear- 
ings of  the  argument.  The  aim  of  the  former  inquiry  is, 
to  explain  in  what  manner  we  learn  to  judge  of  the 
conduct  of  our  neighbour,  that  of  the  latter,  to  show  how, 
by  applying  these  judgments  to  ourselves,  we  acquire  a 
sense  of  duty,  and  a  feeling  of  its  paramount  authority 
over  all  our  other  principles  of  action. 

Our  moral  judgments,  both  with  respect  to  our  own 
conduct  and  that  of  others,  include  two  distinct  percep- 
tions; first,  A  perception  of  conduct  as  right  or  wrong; 
and  secondly,  A  perception  of  the  merit  or  demerit  of  the 


agent.  To  that  quality  of  conduct  which  moralists,  in 
general,  express  by  the  word  Rectitude,  Mr.  Smith  gives 
the  name  of  Propriety;  and  he  begins  his  theory  with  in- 
quiring in  what  it  consists,  and  how  we  are  led  to  form 
the  idea  of  it.  The  leading  principles  of  his  doctrine  on 
this  subject  are  comprehended  in  the  following  proposi- 
tions : — 

1.  It  is  from  our  experience  alone  that  we  can  form 
any  idea  of  what  passes  in  the  mind  of  another  person 
....  by  supposing  ourselves  in  the  same  circumstances 
with  him,  and  conceiving  how  we  should  be  affected  if  we 

were   so   situated Sympathy,   or   fellow-feeling   are 

two  synonymous  words  expressing  our  tendency  so  to 
enter  into  the  situations  of  other  men. 

2.  A  sympathy  or  fellow-feeling  between  different 
persons  is  always  agreeable  to  both. 

3.  When  the  spectator  of  another  man's  situation, 
.  .  .  .  feels  himself  affected  in  the  same  manner  .... 
he  approves  of  the  affection  or  passion  of  this 

By  the  propriety  therefore  of  any  affection  or  passion 
.  ...  is  to  be  understood  its  suitableness  to  the  object 
which  excites  it  ...  .  ;  the  perception  of  this  coincidence 
is  the  foundation  of  the  sentiment  of  moral  approbation." 

This  citation  from  Dtigald  Stewart  sufficiently 
indicates  two  things:  first,  that  Smith's  sys- 
tem was  essentially  a  theory  of  moral  relations; 
second,  that  it  was  a  theory  the  content  of  which 
has  been  outgrown.    The  most  important  part  of 

"  This  passage  is  a  digest  of  the  five  sections  into  which 
Stewart  divides  Smith's  Moral  Theory. 


the  practical  content  of  the  theory  may  be  added 
in  the  words  of  Hirst:  ^^ 

Every  moralist's,  even  Epictetus's,  description  of  vir- 
tue is  just,  as  far  as  it  goes.  But  Smith  claims  to  have 
been  the  first  to  give  any  precise  or  distinct  measure  by 
which  the  fitness  or  propriety  of  affection  can  be  ascer- 
tained and  judged.  Such  a  measure  he  finds  in  the 
sympathetic  feelings  of  the  impartial  and  well  informed 
spectator.  Here,  then,  we  have  the  central  and  peculiar 
doctrine  that  stamps  with  originality  Adam  Smith's 
Theory  of  Moral  Sentiments. 

We  may  remark,  in  passing,  that  the  idea  of 
the  dispassionate  observer  served  the  purpose,  in 
all  Smith's  later  thinking,  which  the  idea  of 
"the  on-going  of  the  social  process"  is  beginning 
to  serve  in  modern  dynamic  sociology.  More 
than  this,  if  we  analyze  the  notion  of  the  impar- 
tial observer,  we  find  that  his  opinions  can  be  of 
no  objective  value  unless  they  correctly  reflect 
the  same  ultimate  standard  of  judgment  which 
is  in  view  in  the  concept  ''on-going  of  the  social 

No  more  is  necessary  for  the  purpose  of  the 
present  inquiry.  Stewart's  exposition  serves  to 
show  the  situation  more  plainly  than  it  could  be 
seen  by  brief  inspection  of  Adam  Smith's  own 
works.  It  shows  that  the  second  part  of  Smith's 
system,  or  "Ethics,"  was  not  intended  to  be  what 

"  Adam  Smith,  p.  56.    Cf.  above,  p.  35. 


we  now  understand  by  the  term.  It  was  by  defi- 
nition first  pure  metaphysics,  and  in  development 
partly  pure  metaphysics  and  partly  amateurish 

By  a  gradation  in  which  we  easily  trace  a  sur- 
vival of  the  Cartesian  methodology,  the  series, 
firstj  Natural  Theology,  second,  Ethics,  shrank 
in  generality  and  became  increasingly  specific 
in,  third,  the  theory  of  Justice,  and,  fourth,  the 
theory  of  Prudence.  Whatever  we  may  think 
about  the  classification  of  the  two  latter  subjects, 
Smith  made  them  rather  corollaries  or  emana- 
tions from  Ethics.  His  own  treatment  of  Ethics 
is  to  be  found  in  The  Theory  of  Moral  Senti- 
ments}^ We  may  get  a  bird's-eye  view  of  the 
system  from  the  titles  of  its  main  divisions : 

Section    I.      Of    the    Sense    of    Propriety 
Chapter  I.     Of  Sympathy. 

Chapter  II.     Of  the  Pleasure  of  Mutual  Sympathy. 
Chapter  III.     Of  the  manner  in  which  we  judge  of  the 
Propriety  or  Impropriety  of  the  Affections  of  other 
Men  by  their  Concord  or  Dissonance  with  our  own. 
Chapter  IV.     The  Same  Subject  continued. 
Chapter  V.     Of  the  amiable  and  respectable  Virtues. 

"First  published  1759;  i.  e.,  seventeen  years  before  the 
publication  of  The  Wealth  of  Nations.  1  quote  from  the  Bohn 


Section  II.    Of  the  Degrees  of  the  Different  Passions 

WHICH    ARE    consistent    WITH    PROPRIETY 

Chapter  I.     Of  the  Passions  which  take  their  origin  from 

the  Body. 
Chapter   II.     Of  those   Passions  which   take  their   origin 

from  a  particular  turn  or  habit  of  the  Imagination. 
Chapter  III.     Of  the  Unsocial   Passions. 
Chapter  IV.     Of  the  Social  Passions. 
Chapter  V.     Of  the  Selfish  Passions. 

Section  III.  Of  the  Effects  of  Prosperity  and  Adver- 

Chapter  I.  That  though  our  sympathy  with  Sorrow  is 
generally  a  more  lively  sensation  than  our  sym- 
pathy with  Joy,  it  commonly  falls  much  more  short 
of  the  violence  of  what  is  naturally  felt  by  the  person 
principally    concerned. 

Chapter  II.  Of  the  Origin  of  Ambition  and  of  the  dis- 
tinction of   ranks. 

Chapter  III.  Of  the  Corruption  of  our  Moral  Senti- 
ments, which  is  occasioned  by  this  disposition  to 
admire  the  rich  and  the  great,  and  to  despise  and 
neglect  persons  of  poor  and  mean  condition. 


Section  I.    Of  the  Sense  of  Merit  and  Demerit 
Chapter  I.     That  whatever  appears  to  be  the  proper  object 
of  Gratitude,  appears  to  deserve  Reward;  and  that,  in 
the  same  manner,  whatever  appears  to  be  the  proper 


Object    of    Resentment    appears    to    deserve    Punish- 

Chapter  11.  Of  the  proper  Objects  of  Gratitude  and 

Chapter  III.  That  where  there  is  no  Approbation  of  the 
Conduct  of  the  Person  who  confers  the  Benefit,  there 
is  little  Sympathy  with  the  Gratitude  of  him  who 
receives  it;  and  that,  on  the  contrary,  where  there 
is  no  Disapprobation  of  the  Motives  of  the  Person 
who  does  the  Mischief,  there  is  no  sort  of  Sympathy 
with  the  Resentment  of  him  who  suffers  it. 

Chapter   IV.     Recapitulation   of  the   Foregoing   Chapters. 

Chapter  V.  Analysis  of  the  Sense  of  Merit  and  De- 

Section    II.     Of   Justice   and    Beneficence 

Chapter  I.     Comparison  of  those  two  Virtues. 

Chapter  II.  Of  the  sense  of  Justice,  of  Remorse,  and 
of  the  Consciousness  of  Merit. 

Chapter  III.    Of  the  utility  of  this  constitution  of  nature. 

Section  III.  Of  the  influence  of  fortune  upon  the 
Sentiments  of  Mankind,  with  regard  to  the 
Merit  or  Demerit  of  Actions 

Chapter  I.    Of  the  causes  of  this  Influence  of  Fortune. 

Chapter  II.     Of  the  extent  of  this  Influence  of  Fortune. 

Chapter  III.  Of  the  final  cause  of  this  irregularity  of 


Chapter  I.  Of  the  Principle  of  Self-approbation  and 


Chapter  II.  Of  the  love  of  Praise,  and  of  that  of  Praise- 
worthiness,  and  of  the  dread  of  Blame,  and  of 
that  of  Blame-worthiness. 

Chapter  III.  Of  the  Influence  and  Authority  of  Con- 

Chapter  IV.  Of  the  nature  of  Self-deceit,  and  of  the 
Origin  and  Use  of  General  Rules. 

Chapter  V.  Of  the  Influence  and  Authority  of  General 
Rules  of  Morality,  and  that  they  are  justly  regarded 
as  the  Laws  of  the  Diety. 

Chapter  VI.  In  what  cases  the  Sense  of  Duty  ought  to 
be  the  sole  principle  of  our  Conduct,  and  in  what 
cases  it  ought  to  concur  with  other  motives. 


Chapter  I.  Of  the  Beauty  which  the  Appearance  of  Utility 
bestows  upon  all  the  productions  of  Art,  and  of  the 
extensive  influence  of  this  species  of  Beauty. 

Chapter  II.  Of  the  Beauty  which  the  Appearance  of 
Utility  bestows  upon  the  Characters  and  Actions  of 
Men;  and  how  far  the  perception  of  this  Beauty 
may  be  regarded  as  one  of  the  original  Principles 
of  Approbation. 


Chapter  I.  Of  the  Influence  of  Custom  and  Fashion 
upon  our  notions  of  Beauty  and  Deformity. 

Chapter  II.  Of  the  Influence  of  Custom  and  Fashion 
upon  Moral   Sentiments. 


Section  I.    Of  the  Character  of  the  Individual  so  far 

AS    IT   affects    his    OWN    HAPPINESS^   OR  OF    PRUDENCE 

Section   II.     Of  the  Character  of  the   Individual   so 


Chapter  I.  Of  the  Order  in  which  Individuals  are  recom- 
mended by  nature  to  our  care  and  attention. 

Chapter  II,  Of  the  Order  in  which  Societies  are  recom- 
mended by  Nature  to  our  Beneficence, 

Chapter    III,    Of    Universal    Benevolence. 

Section  III.    Of  Self-Command 

Conclusion  of  the  Sixth   Part 

Section  I.  Of  the  questions  which  ought  to  be  ex- 
amined  IN    A   theory  of  the   MORAL   SENTIMENTS 

Section  II.     Of  the  Different  Accounts  which   have 


Chapter  I.  Of  those  systems  which  make  Virtue  con- 
sist  in   Propriety. 

Chapter  II,  Of  those  systems  which  make  Virtue  consist 
in  Prudence. 

Chapter  HI,  Of  those  systems  which  make  Virtue  consist 
in  Benevolence, 

Chapter  IV.     Of  Licentious  Systems, 

Section   HI,    Of  the  Different   Systems   which   have 


Chapter  I.  Of  those  systems  which  deduce  the  Principle 
of  Approbation  from  Self-love. 


Chapter   11.    Of   those   systems  which  make   Reason  the 

Principle   of   Approbation. 
Chapter  III.    Of  those  systems  which  make  Sentiment  the 

Principle  of  Approbation. 

Section  IV.     Of  the  Manner  in  which  different  au- 
thors    HAVE     TREATED     OF     THE     PRACTICAL     RULES     OF 


With  reference  to  this  system  of  Moral  Phi- 
losophy, I  repeat,  first,  that  the  present  argument 
is  in  no  way  concerned  with  supporting  its  spe- 
cific contents.  In  detail  it  strikes  the  modern 
mind  as  naive  in  many  ways.  The  important 
matter  for  us  is  that  it  was  an  attempt  to  state 
life  in  the  large,  in  moral  terms,  and  that  this 
attempt  drew  the  broad  outlines  of  the  picture  of 
life  within  which  the  economic  technique  after- 
ward analyzed  had  to  find  its  rating. 

In  the  second  place,  we  should  further  fortify 
our  argument  by  pointing  out  that  the  main  cur- 
rent of  moral  philosophy  in  the  eighteenth  cen- 
tury was  essentially  non-moral  in  our  modern 
sense,  because  it  was  subjective  rather  than  objec- 
tive, individual  rather  than  social.  Adam  Smith 
was  a  good  illustration  of  this  paradox.  His 
moral  philosophy  was  in  the  world,  but  not  of  the 
world,  in  the  sense  which  makes  the  difference 
both  between  speculative  and  positive  morals  and 
between  individualistic  and  social  morals.    Eight- 


eenth-century  philosophy  attempts  to  explain  the 
world  and  its  people  either  from  a  metaphysical 
ground  outside  of  the  world  and  people,  or  from 
a  qualitative  analysis  of  the  individual  mind. 
Smith's  system  of  morals,  for  example,  rested  on 
the  principle  of  approbation  in  the  mental  opera- 
tions of  the  individual.    For  instance,  he  says:  ^"^ 

When  we  approve  of  any  character  or  action,  the  senti- 
ments which  we  feel  are,  according  to  the  foregoing  sys- 
tem, derived  from  four  sources,  which  are  in  some  re- 
spects different  from  one  another.  First,  we  sympathize 
with  the  motives  of  the  agent;  secondly,  we  enter  into  the 
gratitude  of  those  who  receive  the  benefit  of  his  actions; 
thirdly,  we  observe  that  his  conduct  has  been  agreeable  to 
the  general  rules  by  which  those  two  sympathies  generally 
act;  and,  last  of  all,  when  we  consider  such  actions  as 
making  a  part  of  a  system  of  behaviour  which  tends  to 
promote  the  happiness  either  of  the  individual  or  of  the 
society,  they  appear  to  derive  a  beauty  from  this  utility, 
not  unlike  that  which  we  ascribe  to  any  well  contrived 
machine.  After  deducting,  in  any  one  particular  case,  all 
that  must  be  acknowledged  to  proceed  from  some  one  or 
other  of  these  four  principles,  I  should  be  glad  to  know 
what  remains ;  and  I  shall  freely  allow  this  overplus  to 
be  ascribed  to  a  moral  sense,  or  to  any  other  peculiar 
faculty,  provided  anybody  will  ascertain  precisely  what  this 
overplus  is.  It  might  be  expected,  perhaps,  that  if  there 
was  any  such  peculiar  principle,  such  as  this  moral  sense 
is  supposed  to  be,  we  should  feel  it  in  some  particular 
cases,   separated   and  detached   from   every  other,   as   we 

"  Moral  Sentiments,  p.  479. 


often  feel  joy,  sorrow,  hope  and  fear,  pure  and  unmixed 
with  any  other  emotion.  This,  however,  I  imagine,  cannot 
ever  be  pretended.  I  have  never  heard  any  instance 
alleged  in  which  this  principle  could  be  said  to  exert  itself 
alone  and  unmixed  with  sympathy  or  antipathy,  with  grati- 
tude or  resentment,  with  the  perception  of  the  agreement 
or  disagreement  of  any  action  to  an  established  rule,  or, 
last  of  all,  with  that  general  taste  for  beauty  and  order 
which  is  excited  by  inanimated  as  well  as  by  animated 

In  the  proposition  which  the  foregoing  quo- 
tation supports,  I  beheve  I  have  pointed  to  a 
more  precise  location  of  the  ultimate  principles 
of  Smith's  system  than  that  contained  in  In- 
gram's appreciation :  ^^ 

As  a  moral  philosopher  Smith  cannot  be  said  to  have 
won  much  acceptance  for  his  fundamental  doctrine.  That 
doctrine  is,  that  all  our  moral  sentiments  arise  from  sym- 
pathy, that  is,  from  the  principle  of  our  nature  "which 
leads  us  to  enter  into  the  situations  of  other  men,  and  to 
partake  with  them  in  the  passions  which  those  situations 
have  a  tendency  to  excite."  Our  direct  sympathy  with  the 
agent  in  the  circumstances  in  which  he  is  placed  gives 
rise,  according  to  this  view,  to  our  notion  of  the  propriety 
of  his  action,  whilst  our  indirect  sympathy  with  those 
whom  his  actions  have  benefitted  or  injured  gives  rise  to 
our  notions  of  merit  and  demerit  in  the  agent  himself. 

If  I  correctly  interpret  the  relations  of  Smith's 
psychology  to  his  moral  philosophy,  he  made  the 

^Encyclopaedia  Britannica,  9th  ed.,  article  "Adam  Smith." 


subjective  process,  "approbation,"  arbiter  over 
the  social  process,  "sympathy,"  and  not  the  re- 

If  we  were  studying  the  growth  of  psychol- 
ogy, instead  of  the  relation  of  economic  to  socio- 
logical thinking,  it  would  be  necessary  to  devote 
some  further  attention  to  this  element  in 
Smith's  treatment  of  the  moral  sentiments. 
In  brief,  the  argument  is  an  attempt  to  get  a  way 
of  classifying  actions  in  the  objective  world  by 
finding  an  order  of  authority  in  our  affections. 

In  spite  of  everything,  the  argument  had  to 
smuggle  a  value  into  these  moral  sentiments 
from  the  observed  outward  effects  of  the  kinds 
of  conduct  that  stimulated  them.  The  futility 
and  fallacy  of  this  procedure  is  not  even  yet  very 
plain  to  many  people.  Although  Smith  denied 
that  a  special  faculty  was  the  arbiter  of  moral 
values,  he  still  held  that  the  standard  of  moral 
value  was  in  consciousness  rather  than  in  the 
system  of  cause  and  effect  which  the  mind  has  to 
interpret.  In  brief,  this  eighteenth-century  moral 
philosophy  was  a  non-moral  theory  of  moral 
values.  It  was  an  attempt  to  appraise  social  sub- 
stance in  terms  of  forms  of  individual  apprecia- 
tion. It  was  thus  a  means  of  classifying  social 
phenomena  according  to  subjective  categories 
and  standards.     It  was  not  yet  on  the  track  of 


the  quality  of  social  phenomena  as  determined 
by  their  objective  effects. 

If  a  single  paragraph  may  be  chosen  as  an  in- 
dex of  Smith's  method  of  arriving  at  a  theory 
of  ethical  judgments,  perhaps  one  of  the  most 
typical  is  found  in  Part  III,  Chapter  I,  of  Theory 
of  Moral  Sentiments: 

Were  it  possible  that  a  human  creature  could  grow  up 
to  manhood  in  some  solitary  place,  without  any  communi- 
cation with  his  own  species,  he  would  no  more  think  of 
his  own  character,  of  the  propriety  or  demerit  of  his 
own  sentiments  and  conduct,  of  the  beauty  or  deformity 
of  his  own  mind,  than  of  the  beauty  or  deformity  of  his 
own  face.  All  these  are  objects  which  he  cannot  easily 
see,  which  naturally  he  does  not  look  at,  and  with  regard 
to  which  he  is  provided  with  no  mirror  which  can  present 
them  to  view.  Bring  him  into  society  and  he  is  immedi- 
ately provided  with  the  mirror  which  he  wanted  before. 
It  is  placed  in  the  countenance  and  behaviour  of  those  he 
lives  with,  which  always  mark  when  they  enter  into, 
and  when  they  disapprove  of  his  sentiments ;  and  it  is 
here  that  he  first  views  the  propriety  and  impropriety  of 
his  own  passions,  the  beauty  and  deformity  of  his  own 
mind.  To  a  man  who  from  his  birth  was  a  stranger  to 
society,  the  object  of  his  passions,  the  external  bodies 
which  either  pleased  or  hurt  him,  would  occupy  his  whole 
attention.  The  passions,  themselves,  the  desires  or  aversions, 
the  joys  or  sorrows,  which  those  objects  excited,  though  of  all 
things  the  most  immediately  present  to  him,  could  scarce 
ever  be  the  objects  of  his  thoughts.  The  idea  of  them 
could  never  interest  him  so  much  as  to  call  upon  his  at- 


tentive  consideration.  The  consideration  of  his  joy  could 
in  him  excite  no  new  joy,  nor  that  of  his  sorrow  any  new 
sorrow,  though  the  consideration  of  the  causes  of  those 
passions  might  often  excite  both.  Bring  him  into  society, 
and  all  his  own  passions  will  immediately  become  the 
causes  of  new  passions.  He  will  observe  that  mankind 
approves  of  some  of  them,  and  are  disgusted  with  others. 
He  will  be  elevated  in  the  one  case,  and  cast  down  in  the 
other;  his  desires  and  aversions,  his  joys  and  sorrows, 
will  now  often  become  the  causes  of  new  desires  and 
new  aversions,  new  joys  and  new  sorrows;  they  will  now, 
therefore,  interest  him  deeply,  and  often  call  upon  his 
most  attentive  consideration. 

In  this  passage  approbation  in  others  is  made 
the  cause  of  approbation  in  me,  and  approbation 
in  me  is  the  criterion  of  the  value  of  approba- 
tion in  others.  Thus  moral  sentiments  are  social 
phenomena,  but  in  this  scheme  society  itself  is  a 
sort  of  ghostly  affair  at  best.  Smith's  own  lan- 
guage suggests  the  analogy  with  which  to  de- 
scribe it.  Society,  according  to  this  account, 
would  seem  to  be  a  collection  of  images  reflect- 
ing one  another  back  and  forth  in  a  group  of 
mental  mirrors;  but  there  is  only  a  hint  of  a 
wraith  of  reality  which  first  gave  the  mirrors 
something  to  reflect.  This  version  of  moral  rela- 
tions contains  little  of  the  vitality  that  we  now 
discover.  There  is  really  no  admitted  criterion  of 
moral  value  in  Smith's  system  outside  of  the 
judgments  of  individuals. 


Yet  we  must  put  the  emphasis  in  the  last  sen- 
tence on  the  word  "admitted."  In  spite  of  the 
individuaHstic  and  subjectivistic  psychology  which 
Smith  inherited,  and  from  which  only  a  few 
persons,  more  than  a  century  later,  have  worked 
themselves  partially  free,  the  inevitableness  of  the 
social  in  the  human  lot  was  constantly  impress- 
ing on  him  the  reality  of  social  relations,  though 
he  kept  piously  trying  to  express  it  in  terms  of  a 
sterile  individualism.  That  is,  his  unanalyzed 
perceptions  were  much  more  genuinely  moral 
than  his  moral  theories. ^^ 

The  underlying  and  implicit  dependence  of  all 
moral  judgments  upon  some  relation  of  utility 
that  is  wider  in  its  scope  than  the  consciousness 
of  individuals  sometimes  breaks  out  in  explicit 
formulation.     For  instance: 

It  is  thus  that  man,  who  can  subsist  only  in  society, 
was  fitted  by  nature  to  that  situation  for  which  he  was 
made.  All  the  members  of  human  society  stand  in  need 
of  each  other's  assistance,  and  are  likewise  exposed  to 
mutual  injuries.  Where  the  necessary  assistance  is  recip- 
rocally afforded  from  love,  from  gratitude,  from  friend- 
ship, and  esteem,  the  society  flourishes  and  is  happy.     All 

"  For  illustrations  see  such  passages  as  the  two  para- 
graphs at  the  close  of  Part  I,  Sec.  I,  Chap.  IV ;  the  last  para- 
graph but  one  in  Part  I,  Sec.  II,  Chap.  II ;  the  whole  of  the 
two  following  chapters  ;  much  of  Part  I,  Sec.  Ill ;  the  whole 
factor  of  social  utility  unconsciously  molding  the  discussion  of 
"merit  and  demerit,"  Part  II,  etc. 


the  different  members  of  it  are  bound  together  by  the 
agreeable  bonds  of  love  and  affection,  and  are,  as  it 
were,  drawn  to  one  common  centre  of  mutual  good  offices. 
....  Society  cannot  subsist  among  those  who  are  at  all 
times  ready  to  hurt  and  injure  one  another Be- 
nevolence, therefore,  is  less  essential  to  the  existence  of 
society  than  justice.  Society  may  subsist,  though  not  in 
the  most  comfortable  state,  without  beneficence;  but  the 
prevalence  of  injustice  must  utterly  destroy  it." 

It  is  difificult  ill  our  clay  to  understand  how  a 
man  of  Adam  Smith's  acuteness  could  have  been 
so  near  to  the  premises  of  an  objective  moral 
philosophy,  without  doing  as  much  to  develop  it 
in  form  as  he  did  in  spirit.  Later  in  the  same 
chapter  he  expressly  denies  that  we  learn  to  ap- 
prove useful  conduct  and  abhor  the  harmful 
through  perception  of  its  consequences.  This  is 
survival  of  the  sense  of  duty  to  save  the  face  of 
dogma,  rather  than  to  accept  the  full  value  of 
discovery.  But  this  denial  does  not  weaken  the 
thesis  that  Smith  regards  human  society  as  sub- 
ject to  the  laws  of  a  sovereign  moral  system, 
whatever  we  may  think  of  his  conceptions  of  that 
system.  Thus,  at  the  close  of  the  chapter  just 
quoted,  he  remarks : 

For  it  well  deserves  to  be  taken  notice  of,  that  we  are 
so  far  from  imagining  that  injustice  ought  to  be  punished 
in  this  life,  merely  on  account  of  the  order  of  society, 

=*  Begitming  of  Part  II,  Sec.  II,  Chap.  III. 


which  cannot  otherwise  be  maintained,  that  nature  teaches 
us  to  hope,  and  religion,  we  suppose,"^  authorizes  us  to 
expect,  that  it  will  be  punished  even  in  a  life  to  come. 
Our  sense  of  its  ill  desert  pursues  it,  if  I  may  say  so, 
even  beyond  the  grave,  though  the  example  of  its  punish- 
ment there  cannot  serve  to  deter  the  rest  of  mankind, 
who  see  it  not,  who  know  it  not,  from  being  guilty  of  the 
like  practices  here.  The  justice  of  God,  however,  we 
think,  still  requires,  that  he  should  hereafter  avenge  the 
injuries  of  the  widow  and  the  fatherless,  who  are  here 
so  often  insulted  with  impunity.  In  every  religion,  and 
in  every  superstition  that  the  world  has  ever  beheld,  ac- 
cordingly, there  has  been  a  Tartarus  as  well  as  an  Elys- 
ium ;  a  place  provided  for  the  punishment  of  the  wicked, 
as  well  as  one  for  the  reward  of  the  just. 

Smith  gives  much  more  direct  expression  of 
his  beHef  that  our  moral  judgments,  whether  on 
matters  of  greater  or  less  importance,  or  how- 
ever we  may  suppose  them  to  have  originated, 
are,  like  the  actions  which  they  appraise,  all  re- 
sponsible to  a  final  scheme  of  moral  order,  in 
such  language  as  the  following: 

Upon  whatever  we  suppose  that  our  moral  faculties 
are  founded,  whether  upon  a  certain  modification  of 
reason,  upon  an  original  instinct,  called  a  moral  sense,  or 
upon  some  other  principle  of  our  nature,  it  cannot  be 
doubted  that  they  were  given  us  for  the  direction  of  our 
conduct    in   this    life.     They   carry   along   with    them    the 

^  Probably  Haldane  would  cite  this  sentence  as  evidence 
that  Smith's  religious  convictions  were  not  perfervid !  Cf. 
above,  p.  34. 


most  evident  badges  of  this  authority,  which  denote  that 
they  were  set  up  within  us  to  be  the  supreme  arbiters  of 
all  our  actions,  to  superintend  all  our  senses,  passions  and 
appetites,  and  to  judge  how.  far  each  of  them  was  either 

to    be    indulged    or    restrained The    happiness    of 

mankind,  as  well  as  of  all  other  rational  creatures,  seems 
to  have  been  the  original  purpose  intended  by  the  Author 

of    Nature   when    he   brought    them   into    existence 

By  acting  according  to  the  dictates  of  our  moral  faculties, 
we  necessarily  pursue  the  most  effectual  means  for  pro- 
moting the  happiness  of  mankind,  and  may  therefore  be 
said,  in  some  sense,  to  co-operate  with  the  Deity;  and  to 
advance,  as  far  as  in  our  power,  the  plan  of  providence. 
By  acting  otherwise,  on  the  contrary,  we  seem  to  obstruct, 
in  some  measure,  the  scheme  which  the  Author  of  Nature 
has  established  for  the  happiness  and  perfection  of  the 
world,  and  to  declare  ourselves,  if  I  may  say  so,  in  some 
measure  the  enemies  of  God.  Hence  we  are  naturally  en- 
couraged, to  hope  for  his  extraordinary  favour  and  re- 
ward in  the  one  case,  and  to  dread  his  vengeance  and 
punishment  in  the  other.^ 

From  a  quite  different  angle  of  approach, 
Smith  arrives  at  an  assertion  of  the  final  author- 
ity of  moral  law,  in  Part  III,  Chapter  VI : 

There  is,  however,  one  virtue,  of  which  the  general 
rules  determine,  with  the  greatest  exactness,  every  ex- 
ternal action  which  it  requires.  This  virtue  is  Justice. 
The  rules  of  justice  are  accurate  in  the  highest  degree, 
and  admit  of  no  exceptions  or  modifications,  but  such  as 
may  be  ascertained  as  accurately  as  the  rules  themselves, 

^  Part  III,  Chap.  V. 

The  sources  55 

and  which   generally,   indeed,   flow    from   the   very   same 

principles  with  them In  the  practice  of  the  other 

virtues,  our  conduct  should  rather  be  directed  by  a  certain 
idea  of  propriety,  by  a  certain  taste  for  a  particular  tenor 
of  conduct,  than  by  any  regard  to  a  precise  maxim  or 
rule;  and  we  should  consider  the  end  and  foundation  of 
the  rule  more  than  the  rule  itself.  But  it  is  otherwise 
with  regard  to  justice;  the  man  who  in  that  refines  tlie 
least,  and  adheres  with  the  most  obstinate  steadfastness 
to  the  general  rules  themselves,  is  the  most  commend- 
able,     and     the     most     to     be     depended     upon 

The  rules  of  justice  may  be  compared  to  the 
rules  of  grammar;  the  rules  of  the  other  virtues  to  the 
rules  which  critics  lay  down  for  the  attainment  of  what 
is  sublime  and  elegant  in  composition.  The  one  are  pre- 
cise, accurate,  and  indispensable.  The  other  are  loose, 
vague,  and  indeterminate. 

No  wonder  that  a  man  who  indulged  such  a 
serene  faith  that  the  rules  of  justice  were  settled 
once  for  all,  could  feel  perfectly  secure  in  leaving 
them  to  take  care  of  themselves,  while  he  turned 
his  attention  to  the  rules  of  prudence!  One  is 
reminded  of  the  scarcely  less  naive  belief  of 
John  Stuart  Mill,  that  the  theory  of  value  had 
been  settled  once  for  all.^^ 

^  "Happily,  there  is  nothing  in  the  laws  of  Value  which 
remains  for  the  present  or  any  future  writer  to  clear  up ; 
the  theory  of  the  subject  is  complete ;  the  only  difficulty  to 
be  overcome  is  that  of  so  stating  it  as  to  solve  by  anticipation 
the  chief  perplexities  which  occur  in  applying  it ;  .  .  .  . — 
J.  S.  Mill,  Political  Economy,  5th  ed.,  Appletons,  1897,  Vol.  I, 
P.  537- 


Just  as  the  nature  of  value  was  already  be- 
ginning to  be  the  nightmare  among  economic 
problems  before  Mill  died,  so  the  nature  and  im- 
plications of  justice  have  become  the  central 
problems  of  all  positive  moral  philosophy.  To 
one  who  posited  a  pre-established  natural  har- 
i':ony,  and  called  that  harmony  "justice,"  and 
supposed  that  the  key  of  the  system  was  securely 
in  his  possession,  the  open  questions  about  the 
conduct  of  life  would  necessarily  be  those  of  pru- 
dence only.  The  moment  of  the  discovery  that 
in  an  evolving  society  justice  is  a  matter  of 
adaptation;  that  it  is  dynamic,  not  static;  that, 
even  if  we  knew  its  fitnesses  today,  they  may 
become  misfits  tomorrow — that  moment  we  learn 
that  justice  is  not  a  code  of  invariable  rules,  but 
an  adjustment  of  incessantly  changing  relations. 
Thereupon  we  encounter  the  deeper  problems  of 
morals:  What  is  the  meaning  of  human  life, 
and  how  may  we  adjust  our  conduct  accordingly? 
These  are  not  closed  but  open  questions.  Smith's 
inherited  static  notions  of  society  estopped  the 
conception  that  fundamental  moral  relations 
could  be  problematical.  They  were  settled 
in  advance.  The  duty  of  men  was  to  take  them 
for  granted,  and  with  serious  respect  for  them 
to  find  out  as  much  as  possible  about  relations 
that  are  less  certain.    With  the  breaking-down  of 


the  static  preconception  that  has  followed  the 
work  of  Darwin  all  along  the  philosophic  line, 
the  moral  philosophy,  or  sociology;  which  Smith 
could  assume  as  a  major  premise,  has  come  to 
be  the  unknown  quantity.  To  use  the  Spencerian 
idiom,  the  sentiment  of  justice  occupies  the  same 
place  in  modern  social  philosophy  which  it  held 
in  Smith's  system;  the  idea  of  justice  is  getting, 
and  must  get,  a  changing  content  with  the 
changes  in  human  relations  and  with  the 
progress  of  analysis  of  those  relations. 

One  more  quotation  may  suffice  to  justify  the 
theorem  that  Adam  Smith's  philosophy  started 
with  the  conception  of  a  divine  order,  supporting 
a  moral  harmony,  within  which  the  technical  pru- 
dences of  life  are  mere  details.  In  Part  VI,  Sec- 
tion II,  Chapter  III,  he  says: 

The  wise  and  virtuous  man  is  at  all  times  willing  that 
his  own  private  interest  should  be  sacrificed  to  the  greater 
interest  of  the  State  or  sovereignty  of  which  it  is  only  a 
subordinate  part;  he  should,  therefore,  be  equally  willing 
that  all  those  inferior  interests  should  be  sacrificed  to  the 
greater  interests  of  the  universe,  to  the  interest  of  that 
great  society  of  all  sensible  and  intelligent  beings  of 
which  God  himself  is  the  immediate  administrator  and 
director.  If  he  is  deeply  impressed  with  the  habitual  and 
thorough  conviction  that  this  benevolent  and  all-wise 
Being  can  admit  into  the  system  of  his  own  government  no 
partial  evil  which  is  not  necessary  for  the  universal  good, 
he   must  consider  all   the  misfortunes  which   may   befall 


himself,  his  friends,  his  society,  or  his  country,  as  neces- 
sary for  the  prosperity  of  the  universe,  and,  therefore, 
as  what  he  ought  not  only  to  submit  to  with  resigna- 
tion, but  as  what  he  himself,  if  he  had  known  all  the  con- 
nections and  dependencies  of  things,  ought  sincerely  and 
devoutly  to  have  wished   for. 

Nor  does  this  magnanimous  resignation  to  the  will  of 
the  great   Director  of  the  universe   seem  in  any   respect 

beyond   the   reach   of    human   nature A    wise   man 

should  surely  be  capable  of  doing  what  a  good  soldier 
holds  himself  at  all  times  in  readiness  to  do. 

The  idea  of  that  divine  Being,  whose  knowledge  and 
wisdom  have  from  all  eternity  contrived  and  conducted 
the  immense  machine  of  the  universe  so  as  at  all  times 
to  produce  the  greatest  possible  quantity  of  happiness,  is 
certainly,  of  all  the  objects  of  human  contemplation,  by 
far  the  most  sublime.  Every  other  thought  necessarily 
appears  mean  in  the  comparison 

The  administration  of  the  great  system  of  the  universe, 
however,  the  care  of  the  universal  happiness  of  all  rational 
and  sensible  beings,  is  the  business  of  God,  and  not  of 
man.  To  man  is  allotted  a  much  humbler  department, 
but  one  much  more  suitable  to  the  weakness  of  his 
powers,  and  to  the  narrowness  of  his  comprehension, — 
the  care  of  his  own  happiness,  of  that  of  his  family,  his 
friends,  his  country:  that  he  is  occupied  in  contemplating 
the  more  sublime,  can  never  be  an  excuse  for  his  neglect- 
ing the  more  humble  departments ;  and  he  must  not  ex- 
pose himself  to  the  charge  which  Avidius  Cassius  is  said 
to  have  brought,  perhaps  unjustly,  against  Marcus  An- 
toninus, that  while  he  employed  himself  in  philosophical 
speculations,  and  contemplated  the  prosperity  of  the  uni- 
verse,   he    neglected    that    of    the    Roman    Empire.      The 


most  sublime  speculation  of  the  contemplative  philoso- 
pher can  scarce  compensate  the  neglect  of  the  smallest 
active  duty. 

For  a  century  it  was  supposed  that  no  part  of 
Adam  Smith's  lectures  while  a  professor  at  Glas- 
gow had  been  preserved  except  those  portions 
which  appeared  in  the  Theory  of  Moral  Senti- 
ments and  in  The  Wealth  of  Nations.  A  manu- 
script was  found,  however,  and  published  in  1896 
by  Mr.  Edwin  Cannan,  the  title-page  of  which 
reads : 

Juris  Prudence,  or  Notes  from  the  Lectures  on  Jus- 
tice, Police,  Revenue,  and  Arms  delivered  in  the  Univer- 
sity of  Glasgow  by  Adam  Smith,  Professor  of  Moral 
Philosophy.  MDCCLXVI.'* 

For  students  of  certain  phases  of  Adam 
Smith's  thinking,  this  rather  crude  report  of  his 
lectures  is  of  great  value.  It  adds  nothing  to  the 
evidence  needed  for  our  present  inquiry,  beyond 
an  exhibit  of  the  details  of  justice  which,  as  we 
saw  above,^^  Smith  regarded  as  immutable.  We 
need  notice  further  only  that  the  report  as  it 
stands  might  almost  be  used  as  a  syllabus  of  con- 
siderable portions  of  The  Wealth  of  Nations. 
These  include  both  the  political  and  the  economic 

"Cannan,  Lectures  of  Adam  Smith  (Oxford:  Clarendon 
Press;  xH-l-293  pages;  see  "Editor's  Introduction,"  p.  xli). 

""  P.  55. 


portions  of  the  latter  work.  They  have  also  a 
bearing  on  the  question  to  which  we  shall  be 
obliged  to  return,^^  viz. :  What  was  the  rela- 
tion of  Smith's  political  science  to  his  economic 
science?  Considered  as  a  syllabus,  or  prospectus, 
or  first  draft,  as  it  was  in  effect,  the  course  of 
lectures  is  of  value  in  proof  that  The  Wealth  of 
Nations  is  not  a  detached  monograph.  It  is 
rather  of  the  very  texture  of  Smith's  moral 

In  other  words,  we  have  here  the  means,  even 
if  they  were  otherwise  lacking,  for  disposing 
of  the  whole  brood  of  theories  of  which  Skarzyn- 
ski's  may  serve  as  an  edifying  example;  viz., 
that  Smith  was  changed  from  an  idealist  into  a 
materialist  by  his  sojourn  in  France,  and  that 
The  Wealth  of  Nations  represents  Smith's  views 
in  the  latter  character,  as  contrasted  with  the 
abandoned  views  of  the  Theory  of  Moral  Senti- 
2"  Pp.  209  ff. 

^  W.  Skarzynski,  Adam  Smith  ah  Moralphilosoph  und 
Schopfer  der  N ationalokonomie  (Berlin,  1886).  Skarzynski  not 
only  places  himself  in  direct  opposition  to  Oncken  (cf.  above, 
pp.  5,  and  29-32),  but  his  book  of  nearly  500  pages  is  virtually 
an  attempt  to  prove  that  Adam  Smith  was  neither  a  great  man 
nor  a  great  thinker.  Whether  Adam  Smith  was  "great"  or 
not,  in  any  sense,  is  a  question  which  those  may  discuss  who 
have  time  for  that  futile  type  of  inquiry.  It  is  enough  that  he 
has  been,  and  still  is,  influential.    He  is  among  the  men  whose 


The  view  on  which  the  present  study  is  based 
has  never  been  expressed  more  forcibly  than  by 
Bagehot :  ^^ 

Lord  Bacon  says  of  some  one  that  he  was  "like 
Saul"  who  went  in  search  of  his  father's  asses  and 
found  a  "kingdom;"  and  that  is  exactly  what  happened 
to  Adam  Smith.  He  was  engaged  in  a  scheme  of  vast 
research,  far  surpassing  the  means  at  his  disposal,  and 
too  good  for  any  single  man.  In  the  course  of  that  great 
pursuit,  and  as  a  small  part  of  it,  he  came  upon  The 
Wealth  of  Nations,  for  dealing  with  which  his  powers 
and  his  opportunities  peculiarly  fitted  him,  and  on  that 
he  wrote  a  book,  which  has  itself  deeply  influenced  thought 
and  policy,  and  which  has  been  the  beginning  of  a  new 

5.  This   book   is   not   a   critique   of   Adam 
Smith's  economic  doctrines. 

Hirst  has  vividly  described  a  certain  estimate 
of  political  economy  which  had  more  reputable 
sponsors  a  generation  ago  than  it  could  find 
today :  ^^ 

A  heated  imagination,  certainly  not  encumbered  with 
facts,  and  informed  only  that  Adam  Smith  was  the 
founder   of    an    odious    science,    denounced    him    as    "the 

work  would  have  had  to  be  done  by  somebody,  or  knowledge 
could  not  have  advanced  to  its  present  stage.  The  pertinent 
question  is  as  to  the  precise  work  that  Smith  did,  and  as  to 
the  work  still  undone  in  the  line  of  his  beginnings. 

^Economic  Studies,  p.   133.  '^ Adam  Smith,  p.  183. 


half-bred  and  half-witted  Scotchman"  who  taught  "the 
deliberate  blasphemy" — "Thou  shalt  hate  the  Lord  thy 
God,  damn  His  Laws,  and  covet  thy  neighbor's  goods." 
The  same  authority  declares  that  he  "formally  in  the  name 
of  the  philosophers  of  Scotland,  set  up  this  opposite  God, 
on  the  hill  of  cursing  against  blessing,  Ebal  against  Geri- 
zim, — a  God  who  allows  usury,  delights  in  strife  and 
contention,  and  is  very  particular  about  everybody's  going 
to  his  synagogue  on  Sunday."^"  These  three  character- 
istics of  Adam  Smith's  deity  were  unfortunately  chosen; 
for,  as  it  happens,  he  disliked  usury  so  much  that  he  de- 
fended the  laws  which  had  vainly  sought  to  prevent  high 
rates  of  interest;  disapproved  vehemently  of  war,  which 
he  regarded  as  one  of  the  deadliest  enemies  of  human 
progress,  and  protested  against  the  idea  that  a  perfect 
Deity  could  possibly  desire  His  creatures  to  abase  them- 
selves before  Him.  It  is  sad  to  think  that  to  get  his 
gold  the  Ruskinian  must  pass  so  much  sand  through  his 
mind.  The  Fors  Clavigera,  with  all  its  passionate  in- 
tensity and  high-strung  emotion,  is  a  standing  warning 
to  preachers  not  to  abuse  their  masters,  and  to  learn  a 
subject  before  they  teach  it.  Let  those  who  climb  so 
recklessly  on  Ebal  deliver  their  curses  from  a  safer 

On  the  other  hand,  Hirst  has  quite  clearly  ex- 

^^  See  Ruskin,  Fors  Clavigera,  Letters  62  and  y2. 

'*  An  interpretation  somewhat  in  the  spirit  of  Hirst's  pro- 
test, and  rather  clearly  showing  that  it  is  a  peculiarly  shallow 
misconception  to  suppose  that  Smith  was  a  glorifier  of  selfish- 
ness, is  to  be  found  in  the  expansion  of  an  academic  address 
by  Dr.  Wilhelm  Neurath,  Adam  Smith  im  Lichte  heutiger 
Staats-  tind  Socialauffassung  (Vienna,   1884). 


pressed  the  presumption  with  which  this  study 
was  undertaken :  ^^ 

The  truth,  as  Smith  conceived  it,  is  that  men  are 
actuated  at  different  times  by  different  motives,  benevo- 
lent, selfish,  or  mixed.  The  moral  criterion  of  an  action 
is:  will  it  help  society,  will  it  benefit  others,  will  it  be 
approved  by  the  Impartial  Spectator?  The  economic  cri- 
terion of  an  action  is :  will  it  benefit  me,  will  it  be  profit- 
able, will  it  increase  my  income?  Smith  built  his  theory 
of  industrial  and  commercial  life  upon  the  assumption  that 
wage-earners  and  profit  makers  are  generally  actuated 
by  the  desire  to  get  as  high  wages  and  profits  as  pos- 
sible. If  this  is  not  the  general  and  predominant  motive 
in  one  great  sphere  of  activity,  the  production 
and  distribution  of  wealth.  The  Wealth  of  Nations 
is  a  vain  feat  of  the  imagination,  and  political  economy 
is  not  a  dismal  science  but  a  dismal  fiction.  But  there  is 
nothing  whatever  either  to  excite  surprise  or  to  suggest 
inconsistency  in  the  circumstance  that  a  philosopher,  who 
(to  adopt  the  modern  jargon  of  philosophy)  distinguished 
between  self-regarding  and  other-regarding  emotions, 
should  have  formed  the  first  group  into  a  system  of 
economics  and  the  second  into  a  system  of  ethics. 

Since  it  is  not  extravagant  hyperbole  to  de- 
scribe nineteenth-century  poHtical  economy  as  a 
progressive  testing  of  the  economic  doctrines  of 
Adam  Smith,  we  have  a  specific  case  under 
Schiller's  generalization,  "The  world's  history  is 
the  world's  assize."     To  criticize  Adam  Smith 

^^Loc  cit.,  p.  182. 


adequately,  as  an  economist,  would  call  for  a 
mobilization  of  everything  added  or  opposed  to 
his  economic  teachings,  in  the  whole  interme- 
diate literature.  But,  if  this  were  feasible,  it 
would  be  outside  the  scope  of  this  study.  With 
Smith's  economics,  as  such,  so  far  as  the  theories 
can  be  regarded  as  separable  from  morals,  I  have 
no  concern  whatsoever.  That  is  a  technological 
affair  about  which  I  profess  no  competence.  Nor 
is  this  the  place  for  a  discussion  of  the  bibliog- 
raphy of  economic  criticism.  If  it  can  be 
imagined  that  anyone  could  have  followed  this 
discussion  thus  far,  who  is  not  already  tolerably 
familiar  with  the  landmarks  of  modern  economic 
science,  reference  may  be  made  to  the  two  most 
convenient  handbooks  of  the  subject — Cossa's  In- 
troduction to  the  Study  of  Political  Economy,^^ 
and  Ingram's  History  of  Political  Economy. ^'^ 
Professor  A.  C.  Miller  presented  a  masterly  sur- 
vey of  the  whole  economic  movement  of  the  nine- 
teenth century  at  the  St.  Louis  Congress  of  Arts 
and  Science.  ^^ 

^  Revised    by    the    author    and    translated    by    Louis    Dyer 

»*  Preface  by  E.  J.  James  (1888). 

^  Ecowomic  Science  in  the  Nineteenth  Century,  Congress 
of  Arts  and  Science,  Vol.  VII,  p.  21. 


6.  This  book   is  an  attempt  to  show   the 


In  Other  words,  it  is  purely  a  contribution  to 
sociological  methodology.  Instead  of  following 
the  usual  procedure  of  developing  abstract  prin- 
ciples algebraically,  I  shall  use  Smith's  analysis 
as  concrete  material  to  bring  into  view  sociologi- 
cal relations  which  pure  economics  overlooks  or 
ignores.  ^^ 

If  Adam  Smith  had  lived  until  today,  and 
had  reiterated  certain  of  his  general  views  about 
the  fundamental  conditions  of  economic  rela- 
tions, he  would  be  classed  as  a  socialist,  without 
benefit  of  clergy.  At  the  same  time,  contrasted 
views  have  been  developed  from  his  principles, 
and  these  latter  have  formed  the  tradition  with 
which  his  memory  is  most  closely  associated. 
It  is  a  part  of  the  irony  of  fate  that  his  name  has 
been  made  synonymous  with  a  conception  of 
economics  which  was  essentially  alien  to  his  real 
views.    The  substance  of  the  explanation  is,  then, 

"  For  the  different  editions  of  The  Wealth  of  Nations  refer- 
ence may  again  be  made  to  Anderson's  bibliography,  appended 
to  Haldane.  All  references  in  this  essay  are  to  the  edition  of 
Ernest  Belfort  Bax  ("Bohn's  Libraries,"  London,  1905). 


to  recapitulate,  first,  that  Smith's  economic  sys- 
tem has  been  considered  apart  from  the  whole 
system  of  moral  philosophy  of  which  it  was  a 
fragment;  and,  second,  that  the  doctrines  which 
Smith  formulated  quite  largely  with  reference 
to  the  then  existing  industrial  conditions  have 
been  treated  by  his  successors  as  having  a  degree 
of  absoluteness  which  he  never  expressly  claimed. 
If  he  had  lived  until  the  revolution  was  fully 
accomplished,  he  would,  without  much  doubt, 
have  returned  to  some  of  the  fundamentals  in  his 
moral  theory,  as  basis  for  restatements  of  the 
derived  doctrines  which  have  been  used  to  bolster 
capitalism  in  the  modern  sense. 

I  repeat,  then,  the  main  proposition:  The 
Wealth  of  Nations  was  essentially  a  technological 
treatise;  i.e.,  ''An  enquiry  into  the  nature  and 
causes  of  the  wealth  of  nations/'  In  other 
words,  the  "natural  world"  and  the  type  of  in- 
dustry being  that  which  Adam  Smith  knew  in 
Great  Britain,  what  was  the  technique  of  the 
whole  process?  It  was  just  as  though  someone 
should  today  write  a  treatise  on  the  best  way  of 
operating  our  national  banking  system.  It  is 
conceivable  that  in  a  generation  we  might  widely 
extend  the  principle  of  "asset  banking."  It  is 
conceivable  that  this  change  might  so  far  modify 
the  whole  system  that  many  of  the  principles 


Stated  generally  in  today's  treatise  would  have  to 
be  withdrawn  or  restated.  Perhaps  it  would 
have  to  be  said  that  they  applied  in  the  original 
form  only  so  far  as  the  banking  system  then  in 
operation  was  still  in  force. 

Something  close  to  this  is  the  case  with  much 
of  Smith's  work,  which  became  part  of  the 
"Classical  Political  Economy."  It  is  true,  if 
certain  presuppositions  are  granted.  It  is  not 
true  if  those  presuppositions  fail  to  represent  the 
social  situation. 

Partly  as  an  excursus,  and  partly  as  a  direct 
advance  in  the  line  of  the  proposed  inquiry,  I 
take  this  occasion  to  comment  on  a  passage  in 
Bagehot  which  has  often  been  misunderstood.^^ 
The  point  raised  will  be  referred  to  less  directly 
elsewhere  in  this  essay. 

Bagehot  opens  his  chapter  entitled  "Adam 
Smith  and  Our  Modern  Economy,"  with  this 
paragraph : 

If  we  compare  Adam  Smith's  conception  of  Political 
Economy  with  that  to  which  we  are  now  used,  the  most 
striking  point  is  that  he  never  seems  aware  that  he  is 
dealing  with  what  we  should  call  an  abstract  science  at 
all.  The  "Weahh  of  Nations"  does  not  deal,  as  do  our 
modern  books,  with  a  fictitious  human  being  hypotheti- 
cally   simplified,   but  with   the   actual   concrete   men   who 

"  Walter  Bagehot,  Economic  Studies  (2d  ed.,  London, 


live  and  move.  It  is  concerned  with  Greeks  and  Romans, 
the  nations  of  the  middle  ages,  the  Scotch  and  the  English, 
and  never  diverges  into  the  abstract  world.  Considering 
the  natural  progress  of  opulence  as  an  item  in  greater 
studies,  as  part  of  the  natural  growth  of  human  civiliza- 
tion, Adam  Smith  always  thought  how  it  had  been  affected 
by  human  nature,  taken  as  a  whole. 

This  paragraph  has  sometimes  been  cited  as 
committing  Bagehot  to  a  judgment  of  Smith 
which  was  quite  the  opposite  of  his  actual  opin- 
ion. The  truth  appears  when  the  language  is 
interpreted  in  the  light  of  an  earlier  passage, 
viz. :  ^^ 

.  ...  in  my  judgment,  there  are  three  defects  in  the 
mode  in  which  Political  Economy  has  been  treated  in 
England,  which  have  prevented  people  from  seeing  what 
it  really  is,  and  from  prizing  it  at  its  proper  value. 

First, — It  has  often  been  put  forward,  not  as  a  theory 
of  the  principal  causes  affecting  wealth  in  certain  societies, 
but  as  a  theory  of  the  principal,  sometimes  even  of  all, 
the  causes   affecting  wealth  in  every  society 

Secondly, — I  think  in  consequence  of  this  defect  of  con- 
ception Economists  have  been  far  more  abstract,  and  in 
consequence  much  more  dry,  than  they  need  have  been. 
If  they  had  distinctly  set  before  themselves  that  they  were 
dealing  only  with  the  causes  of  wealth  in  a  single  set  of 
societies,  they  might  have  effectively  pointed  their  doc- 
trines with  facts  from  those  societies.  But,  so  long  as 
the  theory  vaguely  floated  before  them,  they  shrank  from 
particular   illustrations 

^*  Lac.  cit.,  pp.   1 6-1 8. 


Thirdly, — It  is  also  in  consequence,  as  I  imagine,  of 
this  defective  conception  of  their  science,  that  English 
Economists  have  not  been  as  fertile  as  they  should  have 
been  in  verifying  it.  They  have  been  too  content  to  remain 
in  the  "abstract"  and  to  shrink  from  concrete  notions, 
because  they  could  not  but  feel  that  many  of  the  most 
obvious  phenomena  of  many  nations  did  not  look  much 
like  their  abstractions 

The  particular  Political  Economy  which  I  have  been 
calling  the  English  Political  Economy,  is  that  of  which  the 
first  beginning  was  made  by  Adam  Smithl^ 

It  is  more  than  likely  that  in  the  above  passage 
Bagehot  had  John  Stuart  Mill  very  clearly  in 
his  mind's  eye.  In  the  preface  to  his  Political 
Economy  Mill  expressed  a  judgment  of  Smith's 
method  less  divergent  from  Bagehot's  than 
appears  at  first  glance.  In  stating  the  aims  of 
his  own  book,  Mill  says : 

The  design  of  the  book  is  different  from  that  of  any 
treatise  on  Political  Economy  which  has  been  produced  in 
England  since  the  work  of  Adam  Smith. 

The  most  characteristic  quality  of  that  work,  and  the 
one  in  which  it  most  differs  from  some  others  which 
have  equalled  or  even  surpassed  it  as  mere  expositors  of 
the  general  principles  of  the  subject  [did  the  author  refer 
to  his  father's  textbook?],  is  that  it  invariably  associates 
the  principles  with  their  application.  This  of  itself  im- 
plies a  much  wider  range  of  ideas  and  of  topics  than  are 
included  in  political  economy,  considered  as  a  branch 
of  abstract  speculation.     For  practical  purposes,  political 

'"  Italics  mine. 


economy  is  inseparably  bound  with  many  other  branches 
of  social  philosophy.  Except  in  matters  of  mere  detail, 
there  are  perhaps  no  practical  questions,  even  among 
those  which  approach  nearest  to  the  character  of  purely 
economical  questions,  which  admit  of  being  decided  on 
economical  premises  alone.  And  it  is  because  Adam 
Smith  never  loses  sight  of  this  truth ;  because,  in  his  ap- 
plications of  Political  Economy,  he  perpetually  appeals  to 
other  and  often  far  larger  considerations  than  pure  Politi- 
cal Economy  affords — that  he  gives  that  well-grounded 
feeling  of  command  over  the  principles  of  the  subject 
for  purposes  of  practice,  owing  to  which  the  Wealth  of 
Nations,  alone  among  treatises  on  Political  Economy, 
has  not  only  been  popular  with  general  readers,  but  has 
impressed  itself  strongly  on  the  minds  of  men  of  the 
world  and  legislators. 

It  appears  to  the  present  writer,  that  a  work  similar 
in  its  objects  and  general  conception  to  that  of  Adam 
Smith,  but  adapted  to  the  more  extended  knowledge  and 
improved  ideas  of  the  present  age,  is  the  kind  of  contribu- 
tion which  Political  Economy  at  present  requires. 

Bagehot's  more  extended  analysis  of  Adam 
Smith's  economic  method  repays  careful  atten- 
tion. The  following  is  the  remainder  of  the 
first  section  in  the  chapter  of  which  the  first  para- 
graph was  quoted  above.^^ 

Adam  Smith  approximates  to  our  modern  political 
economists  because  his  conception  of  human  nature  is  so 
limited.  It  has  been  justly  said  that  he  thought  "there 
was    a    Scotchman    inside    every    man."      His    Theory    of 

^'^  Economic  Studies,  pp.   95  ff.      (Cf.  above,  p.  67.) 


Moral  Sentiment  [sic],  indeed,  somewhat  differs  in 
tone,  but  all  through  the  Wealth  of  Nations  the  desire  of 
man  to  promote  his  pecuniary  interest  is  treated  as  far 
more  universally  intense,  and  his  willingness  to  labour 
for  that  interest  as  far  more  eager  and  far  more  com- 
monly diffused,  than  experience  shows  them  to  he*^ 
Modern  economists,  instructed  by  a  larger  experience, 
well  know  that  the  force  of  which  their  science  treats 
is  neither  so  potent  nor  so  isolated  as  Adam  Smith 
thought.  They  consistently  advanced  as  an  assumption 
what  he  more  or  less  assumes  as  a  fact. 

Perhaps  a  little  unfairly,  nothing  has  more  conduced  to 
the  unpopularity  of  modern  political  economists,  and  to 
the  comparative  fame  of  Adam  Smith,  than  this  superior- 
ity of  their  view  over  his.  Of  course  Adam  Smith  was 
infinitely  too  sensible  a  man  to  treat  the  desire  to  attain 
wealth  as  the  sole  source  of  human  action.  He  much 
overrated  its  sphere  and  exaggerated  its  effect,  but  he  was 
well  aware  that  there  was  much  else  in  human  nature 
besides.  As  a  considerate  and  careful  observer  of  man- 
kind, he  could  not  help  being  aware  of  it.  Accordingly  he 
often  introduces  references  to  other  motives,  and  de- 
scribes at  length  and  in  an  interesting  way,  what  we 
should  now  consider  non-economic  phenomena;  and, 
therefore,  he  is  more  intelligible  than  modern  econo- 
mists, and  seems  to  be  more  practical.  But  in  reality  he 
looks  as  if  he  were  more  practical,  only  because  his  analy- 
sis is  less  complete.  He  speaks  as  if  he  were  dealing  with 
all  the  facts  of  human  nature,  when  he  is  not;  modern 

"  Bagehot  does  not  take  the  trouble  to  cite  the  title  of 
Smith's  Theory  accurately.  I  find  no  evidence  that  he  knew 
it  at  first  hand.  His  comparison  between  the  essay  and  The 
Wealth  of  Nations  has  the  effect,  therefore,  of  a  random  shot. 


economists  know  their  own  limitations ;  they  would  no 
more  undertake  to  prescribe  for  the  real  world,  than  a 
man  in  green  spectacles  would  undertake  to  describe  the 
colours  of  a  landscape.*^  But  the  mass  of  mankind  have 
a  difficulty  in  understanding  this.  They  think  Adam  Smith 
practical  because  he  seems  to  deal  with  all  the  real  facts 
of  man's  life,  though  he  actually  exaggerates  some,  and 
often  omits  others;  but  they  think  modern  economists  un- 
practical because  they  have  taken  the  most  business-like 
step  towards  real  practice — that  of  dealing  with  things  one 
at  a  time. 

And  it  is  precisely  this  singular  position  of  Adam 
Smith  which  has  given  him  his  peculiar  usefulness.  He 
fulfilled  two  functions.  On  the  one  hand,  he  prepared 
the  way  for,  though  he  did  not  found,  the  abstract  science 
of  Political  Economy.  The  conception  of  human  nature 
which  underlies  the  Wealth  of  Nations,  is  near  enough 
to  the  fictitious  man  of  recent  economic  science  to  make 
its  reasonings  often  approximate  to,  and  sometimes  coin- 
cide with,  those  which  the  stoutest  of  modern  economists 
might  use.  The  philosophical  and  conscious  ap- 
proximation which  we  now  use  has  been  gradually  framed 
by  the  continual  purification  of  the  rough  and  vague  idea 
which  he  employed.  In  this  way  Adam  Smith  is  the  legiti- 
mate progenitor  of  Ricardo  and  of  Mill.  Their  books 
would  not  have  been  written  in  the  least  as  they  are  now, 
most  likely  would  never  have  been  written  at  all,  unless 
Adam  Smith,  or  some  similar  writer,  had  written  as  he 
has.  But,  on  the  other  hand,  Adam  Smith  is  the  be- 
ginner  of   a   great  practical   movement   too.     His   partial 

*^  In  a  later  essay,  when  the  economists  contemporary  with 
Bagehot  are  under  review,  I  shall  enjoy  a  casual  outing  with 
this  fine  feat  of  imagination!     (Cf.  below,  p.  218.) 


conception  of  human  nature  is  near  enough  to  the  entire 
real  truth  of  it  to  have  been  assumed  as  such  in  his  own 
mind,  and  to  be  easily  accepted  as  such  by  the  multitude 
of  readers.  When  he  writes  he  writes  about  what  inter- 
ests most  practical  men  in  a  manner  which  every  one  will 
like  who  is  able  to  follow  any  sort  of  written  reasoning; 
and  in  his  time  there  was  a  great  deal  of  most  important 
new  truth,  which  most  practical  people  were  willing  to 
learn,  and  which  he  was  desirous  to  teach.  It  is  difficult 
for  a  modern  Englishman,  to  whom  "Free  Trade"  is  an 
accepted  maxim  of  tedious  orthodoxy,  to  remember  suffi- 
ciently that  a  hundred  years  ago  it  was  a  heresy  and  a 
paradox.  The  whole  commercial  legislation  of  the  world 
was  framed  on  the  doctrines  of  protection;  all  financiers 
held  them,  and  the  practical  men  of  the  world  were 
fixed  in  the  belief  of  them.  "I  avow,"  says  Monsieur 
Mollien,  the  wise  Finance  Minister  of  the  First  Napoleon, 
"to  the  shame  of  my  first  instructors,"  the  previous 
officials  of  France,  "that  it  was  the  book  of  Adam 
Smith,  then  so  little  known,  but  which  was  already  de- 
cried by  the  administrators  with  whom  I  had  served, 
which  taught  me  better  to  appreciate  the  multitude  of 
points  at  which  public  finance  touches  every  family,  and 
which  raised  judges  of  it  in  every  household."  There 
were  many  free-traders  before  Adam  Smith,  both  writers 
and  men  of  business,  but  it  is  only  in  the  antiquarian 
sense  in  which  there  were  "poets  before  Homer,  and  kings 
before  Agamemnon."  There  was  no  great  practical 
teacher  of  the  new  doctrine;  no  one  who  could  bring  it 
home  to  the  mass  of  men;  who  connected  it  in  a  plain 
emphatic  way  with  the  history  of  the  past  and  with  the 
facts  of  the  present ;  who  made  men  feel  that  it  was  not  a 
mere   "book   theory,"   but   a   thing   which   might   be,   and 


ought  to  be  real.  And  thus  (by  a  good  fortune  such  as 
has  hardly  happened  to  any  other  writer)  Adam  Smith 
is  the  true  parent  of  Mr.  Cobden  and  the  Anti-Corn  Law 
League,  as  well  as  of  Ricardo  and  of  accurate  Political 
Economy.  His  writings  are  semi-concrete,  seeming  to  be 
quite  so,  and,  therefore,  they  have  been  the  beginnings  of 
two  great  movements,  one  in  the  actual,  and  the  other  in 
the   abstract  world. 

Probably  both  these  happy  chances  would  have  amazed 
Adam  Smith,  if  he  could  have  been  told  of  them.  As 
we  have  seen,  the  last  way  in  which  he  regarded  Political 
Economy  was  as  a  separate  and  confined  specialty ;  he 
came  upon  it  as  an  inseparable  part  of  the  development 
of  all  things,  and  it  was  in  that  connection  that  he  habitu- 
ally considered  it.  The  peculiar  mode  of  treating  the 
subject  which  we  now  have  had  never  occurred  to  him. 
And  the  idea  of  his  being  the  teacher,  who  more  than  any 
one  else  caused  Free  Trade  to  be  accepted  as  the  cardinal 
doctrine  of  English  policy,  would  have  been  quite  as 
strange  to  him.  He  has  put  on  record  his  feelings : — "to 
expect,  indeed,  that  the  freedom  of  trade  should  ever  be 
entirely  restored  in  Great  Britain,  is  as  absurd  as  to 
expect  that  an  Oceania  or  Utopia  should  ever  be  estab- 
lished in  it.  Not  only  the  prejudices  of  the  public,  but 
what  is  more  unconquerable,  the  private  interests  of  many 
individuals,  irresistibly  opposed  it.  Were  the  officers  of 
the  army  to  oppose  with  the  same  zeal  and  unanimity, 
any  reduction  in  the  number  of  forces,  with  which  master 
manufacturers  set  themselves  against  every  law  that  is 
likely  to  increase  the  number  of  their  rivals  in  the  home 
market;  were  the  former  to  animate  their  soldiers,  in  the 
same  manner  as  the  latter  enflame  their  workmen,  to 
attack   with   violence   and   outrage   the   proposers    of   any 


such  regulation;  to  attempt  to  reduce  the  army  would  be 
as  dangerous  as  it  has  now  become  to  attempt  to  diminish 
in  any  respect  the  monopoly  which  our  manufacturers 
have  pbtained  against  us.  This  monopoly  has  so  much 
increased  the  number  of  some  particular  tribes  of  them, 
that,  like  an  overgrown  standing  army,  they  have  become 
formidable  to  the  Government  and  upon  many  occasions 
intimidate  the  legislature.  The  member  of  parliament 
who  supports  every  proposal  for  strengthening  this  mo- 
nopoly is  sure  to  acquire  the  reputation  not  only  of  under- 
standing trade,  but  great  popularity  and  influence  with  an 
order  of  men  whose  numbers  and  wealth  render  them  of 
great  importance.  If  he  opposes  them,  on  the  contrary,  and 
still  more  if  he  has  authority  enough  to  be  able  to  thwart 
them,  neither  the  most  acknowleged  probity,  nor  the 
highest  rank,  nor  the  greatest  public  services  can  protect 
him  from  the  most  infamous  abuse  and  detraction,  from 
personal  insults,  nor  sometimes  from  real  danger,  arising 
from  the  insolent  outrage  of  furious  and  disappointed 

Yet,  in  fact,  the  "Utopia"  of  Free  Trade  was  introduced 
into  England  by  the  exertions  of  the  "master  manufac- 
turers;" and  those  who  advocated  it,  and  who  were 
"thought  to  understand  trade,"  said  that  they  had  learned 
the  doctrines  they  were  inculcating  from  The  Wealth  of 
Nations,  above  and  beyond  every  other  book. 

Mr.  Bagehot's  own  account  thus  aids  the  closer 
inspection  which  shows  that  he  and  Mill  were 
both  right.  In  the  first  passages  compared  they 
were  not  referring  to  the  same  factors  of  Smith's 
method.    The  former  had  in  view  the  premature 


generalizations,  the  insufficient  inductions,  fre- 
quent in  The  Wealth  of  Nations,  although  they 
were  drawn  from  concrete  historical  material. 
The  latter  had  in  mind  the  use  to  which  Smith 
wanted  to  put  his  generalizations  after  he  reached 

That  is,  as  we  shall  have  occasion  to  repeat, 
in  spite  of  the  admirable  concreteness  of  Smith's 
style,  he  followed  not  a  single  consistent  method, 
but  he  exhibited  the  strengths  and  the  weak- 
nesses, the  virtues  and  the  vices,  of  both  the 
abstract,  deductive  method,  and  the  concrete, 
historical  method,  together  with  the  contrasts 
between  pure  science  and  a  social  program.  Dis- 
ciples who  have  carried  each  of  the  scientific 
methods  to  the  limit  legitimately  call  him 

In  trying  to  assign  the  reason  why  the 
influence  of  economic  theory  had  waned,^^  Bage- 
hot  did  not  sufficiently  allow  for  another  crude- 
ness  that  is  evident  in  Smith,  as  well  as  in  the 
later  classical  economists ;  viz. :  the  technological 
content  of  classical  economics  presupposed  a  more 
statical  condition  of  society  than  has  proved  to  be 

"In  this  bifurcation  of  a  method  the  French  sociologists 
have  a  similar  case — the  two  schools  of  the  followers  of 
Le  Play. 

**  Loc  cit.,  p.  3. 


the  case.  Not  only  was  this  virtually  unrecog- 
nized at  Smith's  time,  but  even  when  Bagehot 
wrote  a  century  later,  no  strong  movement  had 
appeared  for  reconsideration  of  those  statical 

Returning  from  the  excursus  and  reducing  the 
whole  matter  to  its  briefest  form,  this  is  our 
theorem  : 

Political  Economy,  as  viewed  by  Adam  Smith,  was 
the  technology  of  a  practical  art  which  was  strictly  re- 
sponsible to  a  moral  philosophy  that  correlated  all  human 
activities.  Political  economy,  after  Adam  Smith,  lost  its 
sense  of  connection  with  the  large  moral  process,  and 
became  the  mystery  of  the  craft  of  the  capitalizer.  We 
propose  an  inspection  of  Adam  Smith's  economic  system, 
for  the  purpose  of  showing  that  in  his  mind  there  was 
no  antithesis,  still  less  a  divorce,  between  economic  tech- 
nology and  sociology;  and  that  the  organization  of  the  two 
in  his  philosophy  rested  upon  a  general  conception  of  the 
subordinate  relationship  of  all  specific  activities  within  an 
inclusive  moral  system,  to  which,  in  effect,  though  not 
in  detail,  all  students  of  society  must  ultimately  return. 



With  the  foregoing  propositions  sufficiently 
emphasized,  we  may  return  to  The  Wealth  of 
Nations  itself,  and  by  a  second  survey  confirm 
the  general  theorem  already  variously  stated; 
viz. :  The  whole  treatise  was  primarily  a  tech- 
nological inquiry,  with  the  ways  and  means  of 
producing  national  wealth  as  its  objective;  it  as- 
sumed that  this  interest  had  a  value  of  its  own; 
at  the  same  time  it  assumed  that  this  interest  in 
production  is  tributary  to  the  interest  in  con- 
sumption ;  it  assumes,  further,  that  the  wealth  in- 
terest in  general  is  but  a  single  factor  in  the  total 
scheme  of  human  and  divine  purposes,  and  that, 
whatever  the  technique  of  satisfying  the  wealth 
interest  may  prove  to  be,  the  place  of  that  inter- 
est in  the  whole  harmony  of  human  relations 
has  to  be  established  by  a  calculus  in  whose  equa- 
tions the  formulas  of  economic  technique  are 
merely  subordinate  terms. 

All  of  this  was  understood  by  Smith's  friend 
Dugald  Stewart,  and  it  was  uttered  by  him  with 
sufficient  clearness  more  than  a  century  ago.     It 



may  assist  our  own  insight  to  recall  some  of  his 
words :  ^ 

The  foregoing  very  imperfect  hints  appear  to  me  to 
form  not  only  a  proper,  but  in  some  measure  a  necessary 
introduction  to  the  few  remarks  I  have  to  offer  on  Mr. 
Smith's  Inquiry:  as  they  tend  to  illustrate  a  connection  be- 
tween his  system  of  commercial  politics  [sic],  and  those 
speculations  of  his  earlier  years  in  which  he  aimed  more 
professedly  at  the  advancement  of  human  improvement 
and  happiness.  It  is  this  view  of  political  economy  that  can 
alone  render  it  interesting  to  the  moralist,  and  can  dig- 
nify calculations  of  profit  and  loss  in  the  eye  of  the  philoso- 
pher. Mr.  Smith  has  alluded  to  it  in  various  passages  of 
his  work,  but  he  has  nowhere  explained  himself  fully  on 
the  subject;  and  the  great  stress  he  has  laid  on  the  divi- 
sion of  labour  in  increasing  its  productive  powers,  seems 
at  first  sight,  to  point  to  a  different  and  very  melancholy 
conclusion : — that  the  same  causes  which  promote  the  prog- 
ress of  the  arts,  tend  to  degrade  the  mind  of  the  artist; 
and,  of  consequence,  that  the  growth  of  national  wealth 
implies  a  sacrifice  of  the  character  of  the  people. 

The  fundamental  doctrines  of  Mr.  Smith's  system 
are  now  so  generally  known,  that  it  would  be  tedious  to 
offer  any  recapitulation  of  them  in  this  place,  even  if  I 
could  hope  to  do  justice  to  the  subject,  within  the  limits 
which  I  have  prescribed  to  myself.  I  shall  content  myself, 
therefore,  with  remarking,  in  general  terms,  that  the  great 
and  leading  object  of  his  speculations  is,  to  illustrate  the 
provisions  made  by  nature  on  the  principles  of  the  human 
mind,  and  in  the  circumstances  of  man's  external  situa- 
tion, for  a  gradual  and  progressive  augmentation  in  the 

*  Account,  etc.,  p.  liv. 


means  of  national  wealth;  and  to  demonstrate  that  the 
most  effectual  plan  for  advancing  a  people  to  greatness,  is 
to  maintain  that  order  of  things  which  nature  has  pointed 
out,  by  allowing  every  man,  as  long  as  he  observes  the 
rules  of  justice,  to  pursue  his  own  interest  in  his  own  way, 
and  to  bring  both  his  industry  and  his  capital  into  the 
freest  competition  with  those  of  his  fellow  citizens.  Every 
system  of  policy  which  endeavours  either  by  extraordinary 
encouragements  to  draw  toward  a  particular  species  of 
industry  a  greater  share  of  the  capital  of  the  society  than 
what  would  naturally  go  to  it,  or,  by  extraordinary  re- 
straint, to  force  from  a  particular  species  of  industry 
some  share  of  the  capital  which  would  otherwise  be 
employed  in  it,  is,  in  reality,  subversive  of  the  great  pur- 
pose which  it  means  to  promote. 

In  Other  words,  what  we  know  of  Adam 
Smith's  whole  scheme  of  thinking  justifies  the 
interpretation  that,  as  it  presented  itself  to  his 
mind,  what  we  now  formulate  as  the  general 
sociological  problem  might  be  explained  as  fol- 

The  destiny  of  mankind  is  to  work  out  a  cer- 
tain moral  achievement.  The  great  intellectual 
task  is  to  understand  the  conditions  and  impli- 
cations of  that  destiny.  There  are  certain  grand 
divisions  of  that  task.  Not  touching  upon  those 
which  belong  within  the  ^cope  of  so-called 
natural  or  physical  science,  the  first  division  of 
the  intellectual  problem  of  discovering  the  con- 
ditions and  implications  of  human  destiny — that 


is,  the  terms  in  accordance  with  which  mankind 
must  learn  how  to  achieve  well-being,  or  happi- 
ness, or  progress,  or  whatever  term  we  may 
prefer  to  use  as  the  algebraic  x  to  denote  the 
content  of  that  undetermined  resultant  of  human 
endeavor  toward  which  we  look  when  we  em- 
ploy the  concept  destiny — the  first  division  of  the 
problem  of  human  life  in  the  large,  is  religious. 
Human  life  is  conditioned  by  its  relations 
to  a  divine  order  and  purpose.  That 
divine  purpose  must  be  investigated,  and  so  far 
as  possible  understood,  in  order  to  get  the  bear- 
ings of  human  life.  Then,  without  attempting  to 
put  into  Smith's  theory  details  about  which  we 
cannot  get  information,  we  have  evidence 
enough  to  show  that,  whether  as  a  subordinate 
section  of  religious  relations,  or  as  a  jdivision 
of  relations  somehow  parallel  with  the  religious 
relations,  there  was  an  ethical  division  of  life. 
If  we  were  to  judge  merely  from  the  essay  on 
the  moral  sentiments,  we  should  be  left  to  the 
impression  that  Smith's  conception  of  ethics  was 
that  it  had  to  do  merely  with  the  theory  of 
appreciation  or  evaluation.  We  know,  however, 
that  this  psychological  discussion  represented 
merely  preliminaries  which  in  his  rnind  led  to  the 
doctrines  of  practical  morals,  and  that  the  whole 
plexus  of  moral  attitudes  with  reference  to  which 


approbation  or  disapprobation  is  possible  consti- 
tuted in  his  mind  a  plane  of  human  activities  dis- 
tinct from  that  which  for  him  made  up  the 
religious  sphere.  Then  the  third  division  of  the 
problem  of  understanding  human  life  appeared 
to  Smith  to  be  that  which  deals  with  the  history 
and  theory  of  civic  justice,  the  ways  and  means 
of  attempting  to  secure  an  approximation  to  the 
principles  of  morals  which  ethics  treats  in  the 
abstract  and  in  the  individualistic  phases.  And, 
finally,  as  all  moral  achievement  has  to  get  the 
use  of  material  bases  and  media,  it  was  neces- 
sary to  work  out  a  science  of  the  ways  and  means 
by  which  the  necessary  material  conditions  of  all 
spiritual  achievement  are  to  be  secured.  Thus 
Smith's  science  of  wealth  had  relatively  the  same 
relation  to  his  whole  philosophy  of  life  that  the 
technique  of  marine  architecture  has  to  our  sys- 
tems of  commercial  and  admiralty  and  interna- 
tional law.  It  was  not  a  science  of  people  in  the 
fulness  of  their  lives.  It  was  merely  a  science 
of  things  and  people  considered  as  factors  in  pro- 
ducing the  material  equipment  of  life. 

I  repeat  that  we  are  not  at  all  bound  to  justify 
Smith's  classification.  It  is  an  entirely  negligible 
matter  that  his  analysis  of  moral  phenomena 
would  not  now  satisfy  anyone.  The  main  thing  is 
that  he  had  a  definite  perception  of  the  mediate, 


and  subordinate,  and  tributary  status  of  wealth, 
and  that  he  betrayed  relatively  slight  symptoms- 
of  the  tendency,  which  was  so  strong  in  the 
stereotyped  classical  theory,  to  assume  that  the 
wealth  factor  is  the  sole  arbiter  of  social  rela- 
tions. How  to  build  a  ship  is  one  thing.  How 
to  settle  questions  of  equity  between  builders, 
and  owners,  and  officers,  and  crew,  and  shippers, 
and  passengers,  and  consignees,  and  other  navi- 
gators, and  commercial  interests  of  the  nations 
at  large,  is  a  very  different  thing.  The  former 
is  analogous  with  the  questions  which  Smith  di- 
rectly raised  in  The  Wealth  of  Nations.  The 
latter  are  suggestive  analogues  of  the  sort  of 
questions  which  he  saw  the  need  of  raising  in  his 
wider  moral  philosophy,  and  in  spite  of  himself 
indirectly  raised  in  his  economic  discussion.^ 

We  have  to  justify  these  propositions  by  a 
rapid  analysis  of  The  Wealth  of  Nations  itself. 

Chapter  I  expounds  the  purely  technical 
theorem : 

^  The  Lectures  on  Justice,  etc.  (above,  p.  59),  contain 
nothing  that  affects  this  summary.  The  treatment  is  wholly 
historical  and  legal,  in  form  and  substance,  except  in  Parts  II 
and  III,  which  might  be  classed  as  economic  rather  than  legal 
or  historical.  At  all  events,  the  relation  of  the  lectures  to 
antecedent  moral  philosophy  does  not  appear  to  have  been 
unlike  that  of  The  Wealth  of  Nations,  of  which,  as  I  said 
ubove,  the  lectures  are  virtually  a  first  draft. 


The  greatest  improvement  in  the  productive  powers  of 
labor,  and  the  greater  part  of  the  skill,  dexterity,  and 
judgment  with  which  it  is  anywhere  directed,  or  applied, 
seem  to  have  been  the  effects  of  the  division  of  labour. 

This  is  a  proposition  which  is  as  far  outside  the 
range  of  moral  relations,  as  Smith  thought  of 
them,  as  elementary  theorems  about  the 
increased  efficiency  of  power  applied  by  means  of 
wedge,  pulley,  screw,  or  lever. 

Smith  attribufes  the  increase  of  work  which 
division  of  labor  makes  possible  to  three  fac- 
tors: first,  to  the  increase  of  dexterity  in  every 
particular  workman;  second,  to  saving  of  time 
usually  lost  in  passing  from  one  species  of  work 
to  another;  third,  to  the  invention  of  machines 
which  enable  one  man  to  do  the  work  oi  many. 

Under  the  last  head  he  introduces  a  considera- 
tion which  might  be  generalized  beyond  the  form 
in  which  he  uses  it ;  viz. : 

All  the  improvements  in  machinery,  however,  have  by 
no  means  been  the  inventions  of  those  who  had  occasion 
to  use  the  machines.  Many  improvements  have  been 
made  by  the  ingenuity  of  the  makers  of  the  machines, 
when  to  make  them  became  the  business  of  a  peculiar 
trade;  and  some  by  that  of  those  who  are  called  philoso- 
phers or  men  of  speculation,  whose  trade  it  is  not  to  do 
anything,  but  to  observe  everything,  and  who,  upon  that 
account,  are  often  capable  of  combining  together  the 
powers  of  the  most  distant  and  dissimilar  objects.' 

»I.  p.  II. 


Without  restricting  this  factor  to  its  value  in 
the  invention  of  machinery,  we  may  say  that  the 
division  of  labor  makes  room  for  activities  which 
have  increasingly  remote  relations  to  the  produc- 
tive process,  and  sets  free  types  of  action  which 
enrich  life,  whether  or  not  they  have  a  direct 
influence  upon  processes  of  producing  wealth.^ 

*  Mallock,  Aristocracy  and  Evottition  (London,  1898), 
opposes  to  what  he  is  pleased  to  call  sociology,  on  the  one 
hand,  and  to  an  equally  questionable  version  of  socialism,  on 
the  other,  a  ponderous  argument,  drawn  out  through  three 
hundred  and  eighty  pages,  the  substance  of  which  is  merely 
a  variation  of  this  perception  of  the  advantages  of  the  division 
of  labor.  The  thread  of  wisdom  that  runs  through  the  book  is 
entangled  in  a  woeful  snarl  of  irrelevance  and  inconsequence. 
His  generalizations  about  sociology  fall  flat  among  sociologists, 
because  he  apparently  bounds  sociology  by  Herbert  Spencer, 
Edward  Bellamy,  Benjamin  Kidd,  and  Sidney  Webb !  His 
account  of  socialism  is  equally  provincial.  The  great-man 
theory  which  he  revises  and  recommends  as  a  remedy  for  the 
errors  of  both,  easily  boils  down  to  the  fact  of  the  advantages 
of  specialization:  This  is  all  implicitly,  and  much  of  it 
expressly,  in  The  Wealth  of  Nations;  it  has  been  exhibited 
much  more  voluminously  by  Tarde,  although  under  the  inade- 
quate labels  "imitation"  and  "invention  ;"  it  has  been  general- 
ized most  correctly  by  my  colleague,  Professor  W.  I.  Thomas, 
in  his  interpretation  "pace-making." 

Mr.  Mallock's  volume  is  an  ingeniously  elaborated  insinua- 
tion that  the  world  is  shrouding  itself  in  darkness  through 
failure  to  perceive  that,  of  all  specializers,  the  specializer  in 
money-making  is  pre-eminently  entitled  to  its  forbearance,  its 
admiration,  and  its  fostering  favor.  The  pathos  of  this  appeal 
so  overstimulates  the  "impartial  spectator's"  sense  of  humor 
that  he  is  embarrassed  in  doing  justice  to  the  elements  in  the 
book  which  deserve  serious  attention. 


The  chapter  contains  a  further  theorem  which 
squints  toward  the  bearing  of  economic  factors 
upon  social  structure ;  viz.  : 

The  separation  of  different  trades  and  employments  is 
a  consequence  of  the  efficiency  of  the  division  of  labour,  and 
is  most  extensive  in  the  countries  which  enjoy  the  highest 
degree  of  industry  and  improvement.'^ 

The  concluding  paragraphs  of  the  chapter 
constitute  one  of  the  classic  passages  in  the  litera- 
ture of  social  description: 

In  the  progress  of  society,  philosophy  or  speculation 
becomes,  like  every  other  employment,  the  principal  or 
sole  trade  and  occupation  of  a  particular  class  of  citizens. 
Like  every  other  employment  too,  it  is  subdivided  into  a 
great  number  of  different  branches,  each  of  which  affords 
occupation  to  a  peculiar  tribe  or  class  of  philosophers ; 
and  this  subdivision  of  employment  in  philosophy,  as  well 
as  in  every  other  business,  improves  dexterity,  and  saves 
time.  Each  individual  becomes  more  expert  in  his  own 
peculiar  branch,  more  work  is  done  upon  the  whole,  and 
the  quantity  of  science  is  considerably  increased  by  it. 

It  is  the  great  multiplication  of  the  productions  of  all 
the  useful  arts,  in  consequence  of  the  division  of  labour, 
which  occasions,  in  a  well-governed  society,  that  uni- 
versal opulence  which  extends  itself  to  the  lowest  rank  of 
the  people.  Every  workman  has  a  great  quantity  of  his 
own  work  to  dispose  of  beyond  what  he  himself  has  occasion 
for;  and  every  other  workman  being  exactly  in  the  same 
situation,  he  is  enabled  to  exchange  a  great  quantity  of 
his  own  goods   for  a  great  quantity,  or,  what  comes  to 

» P.  7. 


the  same  thing,  for  the  price  of  a  great  quantity  of  theirs. 
He  supplies  them  abundantly  with  what  they  have  occa- 
sion for,  and  they  accommodate  him  as  amply  with  what 
he  has  occasion  for,  and  a  general  plenty  diffuses  itself 
through  all  the  different  ranks  of  the  society. 

Observe  the  accommodation  of  the  most  common  artifi- 
cer or  day-labourer  in  a  civilized  and  thriving  country, 
and  you  will  perceive  that  the  number  of  people  of  whose 
industry  a  part,  though  but  a  small  part,  has  been  employed 
in  procuring  him  this  accommodation,  exceeds  all  com- 
putation. The  woolen  coat,  for  example,  which  covers 
the  day-labourer,  as  coarse  and  rough  as  it  may  appear,  is 
the  produce  of  the  joint  labour  of  a  great  multitude  of 
workmen.  The  shepherd,  the  sorter  of  the  wool,  the  wool- 
comber  or  carder,  the  dyer,  the  scribbler,  the  spinner,  the 
weaver,  the  fuller,  the  dresser,  with  many  others,  must  all 
join  their  different  arts  in  order  to  complete  even  this 
homely  production.  How  many  merchants  and  carriers, 
besides,  must  have  been  employed  in  transporting  the  ma- 
terials from  some  of  those  workmen  to  others  who  often 
live  in  a  very  distant  part  of  the  country!  how  much  com- 
merce and  navigation  in  particular,  how  many  ship-builders, 
sailors,  sail-makers,  rope-makers,  must  have  been  employed 
in  order  to  bring  together  the  different  drugs  made  use 
of  by  the  dyer,  which  often  come  from  the  remotest 
corners  of  the  world !  What  a  variety  of  labour  too  is 
necessary  in  order  to  produce  the  tools  of  the  meanest 
of  these  workmen !  To  say  nothing  of  such  complicated 
machines  as  the  ship  of  the  sailor,  the  mill  of  the  fuller, 
or  even  the  loom  of  the  weaver,  let  us  consider  only  what 
a  variety  of  labour  is  requisite  in  order  to  form  that  very 
simple  machine,  the  shears  with  which  the  shepherd  clips 
the    wool.      The   miner,    the   builder    of    the    furnace    for 


smelting  the  ore,  the  feller  of  the  timber,  the  burner  of  the 
charcoal  to  be  made  use  of  in  the  smelting-house,  the  brick- 
maker,  the  bricklayer,  the  workmen  who  attend  the  fur- 
nace, the  millwright,  the  forger,  the  smith,  must  all  of 
them  join  their  different  arts  in  order  to  produce  them. 
Were  we  to  examine,  in  the  same  manner,  all  the  different 
parts  of  his  dress  and  household  furniture,  the  coarse 
linen  shirt  which  he  wears  next  his  skin,  the  shoes  which 
cover  his  feet,  the  bed  which  he  lies  on,  and  all  the  dif- 
ferent parts  which  compose  it,  the  kitchen-grate  at  which 
he  prepares  his  victuals,  the  coals  which  he  makes 
use  of  for  that  purpose,  dug  from  the  bowels  of 
the  earth,  and  brought  to  him  perhaps  by  a  long  sea  and  a 
long  land  carriage,  all  the  other  utensils  of  his  kitchen,  all 
the  furniture  of  his  table,  the  knives  and  forks,  the 
earthen  or  pewter  plates  upon  which  he  serves  up  and 
divides  his  victuals,  the  different  hands  employed  in  pre- 
paring his  bread  and  his  beer,  the  glass  window  which 
lets  in  the  heat  and  the  light,  and  keeps  out  the  wind  and 
the  rain,  with  all  the  knowledge  and  art  requisite  for  pre- 
paring that  beautiful  and  happy  invention,  without  which 
these  northern  parts  of  the  world  could  scarcely  have 
afforded  a  very  comfortable  habitation,  together  with  the 
tools  of  all  the  different  workmen  employed  in  producing 
those  different  conveniences ;  if  we  examine,  I  say,  all 
these  things,  and  consider  what  a  variety  of  labour  is 
employed  about  each  of  them,  we  shall  be  sensible  that 
without  the  assistance  and  co-operation  of  many  thou- 
sands the  very  meanest  person  in  a  civilized  country  could 
not  be  provided,  even  according  to,  what  we  may  falsely 
imagine,  the  easy  and  simple  manner  in  which  he  is  com- 
monly accommodated.  Compared,  indeed,  with  the  more 
extravagant  luxury  of  the  great,  his  accommodation  must 


no  doubt  appear  extremely  simple  and  easy;  and  yet,  it 
may  be  true,  perhaps,  that  the  accommodation  of  an 
European  prince  does  not  always  so  much  exceed  that  of 
an  industrious  and  frugal  peasant,  as  the  accommodation 
of  the  latter  exceeds  that  of  many  an  African  King,  the 
absolute  master  of  the  lives  and  liberties  of  ten  thou- 
sand naked  savages.® 

In  its  primary  purpose  the  first  chapter  of 
The  Wealth  of  Nations  is  no  more  an  essay  in 
moral  relations  than  an  agricultural  chemist's 
statement  of  the  reasons  why  the  virgin  soil  of 
the  Canadian  wheat  area  is  more  fertile  than  an 
abandoned  farm  in  New  England.  It  has  been 
an  effective  stimulus  of  later  inquiry  into  moral 
relations,  but  it  is  immediately  no  more  moral, 
as  Smith  would  use  the  term,  than  a  comparison 
of  the  vegetation  of  the  temperate  and  torrid 

In  Chapter  II  Smith  discusses  "the  principle 
which  gives  occasion  to  the  division  of  labour." 
The  thesis  is  as  follows : 

This  division  of  labour,  from  which  so  many  advan- 
tages are  derived,  is  not  originally  the  effect  of  any  human 
wisdom,  which  foresees  and  intends  that  general  opulence 
to  which  it  gives  occasion.  It  is  the  necessary,  though 
very  slow  and  gradual,  consequence  of  a  certain  pro- 
pensity in  human  nature  which  has  in  view  no  such  ex- 
tensive utility;  the  propensity  to  truck,  barter,  and  ex- 
change one  thing  for  another. 

•Pp.  11-13. 


Of  this  proposition  we  may  say,  first,  it  is 
methodologically  an  obiter  dictum.  That  is,  it 
belongs  in  a  larger  range  of  inquiry,  antecedent 
and  fundamental  to  the  technological  inquiry  to 
which  The  Wealth  of  Nations  is  devoted.  It  is, 
moreover,  a  species  of  inquiry  for  which  Smith's 
scheme  of  moral  philosophy  apparently  does  not 
provide  a  plane.  It  is  related  to  the  proper  sub- 
ject-matter of  economics,  as  conceived  by  the 
author  of  The  Wealth  of  Nations,  very  much  as 
an  inquiry  into  the  ultimate  physical  reasons  for 
the  relative  durability  of  wood  and  steel  would 
be  related  to  an  engineer's  account  of  the  com- 
parative economy  of  these  materials,  as  discov- 
ered by  experience,  for  constructing  railroad 

In  the  second  place,  the  exact  nature  of  the 
question  which  Smith  raises  in  this  chapter  is 
primarily  psychological,  and  secondarily  socio- 
psychological.  It  is  therefore  a  fair  index  of 
the  closeness  of  relationship  between  the  phe- 
nomena of  industry  and  the  general  phenomena 
of  individual  and  social  consciousness.  In  this 
connection  Smith's  work  is  a  premonition  of  the 
inevitable  awakening  of  the  sociological  con- 
sciousness with  the  unavoidable  pursuit  of  in- 
quiries (which  may  have  started  among  economic 
phenomena),  out  into  all  their  relationships  as 
moral  and  psychical  phenomena. 


In  the  third  place,  the  particular  explanation 
which  Smith  proposes  is  of  a  piece  with  the 
mental  philosophizings  of  his  time,  but  it  merely 
applies  a  mouth-filling  name  to  an  unanalyzed 
phenomenon.  The  "propensity  to  barter"  is  just 
as  much  and  just  as  little  a  distinct  and  ultimate 
force  in  human  affairs  as  a  "propensity  to  swim," 
or  a  "propensity  to  jump  over  stone  walls,"  or 
a  "propensity  to  go  to  the  circus."  If  we  fall 
into  the  water,  we  try  to  swim,  because  we  have 
a  preference  for  living.  The  same  fact,  appealed 
to  from  another  direction,  stimulates  us  to  make 
the  best  of  our  ability  to  get  over  a  wall  if  we  are 
chased  by  a  bull.  Certairi  desires  for  nervous 
stimulation  find  temporary  satisfaction  in  the 
circus,  but  a  thousand  alternative  recourses  may 
serve  the  same  purpose.  That  is,  Smith  scratched 
the  surface  of  psychological  phenomena,  which 
have  since  his  time  furnished  problems  for  more 
exact  psychology  and  sociology. 

In  the  fourth  place,  w^e  may  observe  that  this 
sort  of  explanation  is  not  yet  entirely  discredited 
even  among  rather  prominent  scholars.  Som- 
bart  has  thought  it  worth  while  to  ridicule  such 
pseudo-explanation  at  some  length.''' 

In  this  same  chapter  Smith  starts  another  line 
of  inquiry,  which  is  also  external  to  economic 

■^  Moderne  Kapitalismus,  Vol.  I,  pp.  xxv  ff. 


technology,  but,  like  the  problem  of  psychical 
motivation  in  general,  it  could  not  be  ignored, 
even  at  his  preliminary  stage  of  research.  It  is 
strictly  an  essay  in  anthropology.  The  facts  in 
the  case,  quite  independent  of  our  apprehension 
of  them,  are  in  their  degree  responsible  for  many 
social  differences,  while  more  or  less  definite 
theories  about  the  facts  are  shaping  both  abstract 
sociological  doctrines  and  concrete  social  pro- 
grams.   He  says : 

The  difference  of  natural  talents  in  different  men,  is, 
in  reality,  much  less  than  we  are  aware  of,  and  the  very- 
different  genius  which  appears  to  distinguish  men  of  dif- 
ferent professions,  when  grown  up  to  maturity,  is  not  so 
much  the  cause,  as  the  effect  of  the  division  of  labour. 
The  difference  between  the  most  dissimilar  characters,  be- 
tween a  philosopher  and  a  common  street  porter,  for  ex- 
ample, seems  to  arise  not  so  much  from  nature,  as  from 
habit,  custom  and  education By  nature  a  philoso- 
pher is  not  in  genius  and  in  disposition  half  so  different 
from  a  street  porter,  as  a  mastiff  is  from  a  greyhound,  or 
a  greyhound  from  a  spaniel,  or  this  last  from  a  shep- 
herd's dog.® 

These  propositions,  taken  by  themselves,  are 
identical  with  clauses  in  the  doctrines  of  nearly 
all  the  modern  revolutionary  philosophers.  They 
are  taken  for  granted  by  most  of  the  extreme 
socialists.     The  truth  or  error  of  the  proposi- 

«Pp.  16  f. 


tions  is  not  before  us  for  discussion  in  this  argu- 
ment. The  significant  point  is  that  Smith 
instinctively  perceived  the  close  relation  between 
the  technological  problems  of  wealth,  and  the 
anthropological  and  psychological  and  social 
problems  of  people. 

Chapter  III  elaborates  the  thesis  that,  "as  it 
is  the  power  of  exchanging  that  gives  occasion 
to  the  division  of  labour,  so  the  extent  of  this  di- 
vision must  always  be  limited  to  the  extent  of 
that  power,  or,  in  other  words,  by  the  extent  of 
the  market." 

In  one  sense  this  proposition  is  strictly  physi- 
cal. It  is  no  more  to  be  disputed  than  the  propo- 
sition that  the  pressure  of  water  at  the  bottom 
of  a  tube  is  in  proportion  to  the  height  of  the 
water  in  the  tube. 

On  the  other  hand,  Smith  does  not  hint  at  the 
broad  scope  of  the  question,  What  makes  a 
market?  This  is  a  sociological  problem  in  the 
most  extensive  sense.  Its  answer  must  come 
from  knowledge  of  the  whole  gamut  and  the 
most  refined  combinations  of  human  desires.  Li  I 
Hung  Chang  is  reported  to  have  said  that,  if  he 
could  persuade  every  man  in  China  to  add  a 
couple  of  inches  to  the  length  of  his  shirt-tail, 
he  could  create  a  market  for  all  the  cotton  grown 
in  America.     The  population   of   China   is   not 


necessarily  a  market  for  American  cotton.  By  a 
decree  of  the  imperial  government,  if  Great 
Britain  could  be  induced  to  acquiesce,  China 
might  cease  to  be  a  market  for  opium,  etc.,  etc. 
While,  therefore,  this  chapter  contains  a  very 
important  principle  of  economic  technology,  it 
leaves  untouched  the  much  more  important  so- 
ciological question  of  the  origin  and  variation  of 

The  chapter  closes  with  a  pertinent  political 
application  of  the  principle.  It  is  a  typical  in- 
stance of  the  power  of  artificial  social  arrange- 
ments, in  this  case  the  territorial  jurisdiction  of 
states,  to  modify  the  economic  work  of  natural 
conditions ;  viz. : 

The  commerce  besides  which  any  nation  can  carry  on  by 
means  of  a  river  which  does  not  break  itself  into  any 
great  number  of  branches  or  canals,  and  which  runs  into 
another  territory  before  it  reaches  the  sea,  can  never  be 
considerable;  because  it  is  always  in  the  power  of  the 
nations  who  possess  that  other  territory  to  obstruct  the 
communication  between  the  upper  country  and  the  sea. 
The  navigation  of  the  Danube  is  of  very  little  use  to  the 
different  states  of  Bavaria,  Austria  and  Hungary,  in  com- 
parison of  what  it  would  be  if  any  of  them  possessed  the 
whole  of  its  course  till  it  falls  into  the  Black  Sea. 

Chapter  IV,  on  "The  Origin  and  Use  of 
Money  as  a  Medium  of  Exchange,"  does  not 
probe  farther  into  the  sociology  and  psychology 


of  money  than  is  necessary  for  immediate  ex- 
planation of  the  obvious  phenomena  of  exchange. 
It  therefore  has  the  same  relation  to  ultimate  so- 
ciology and  psychology  that  a  mechanic's  expla- 
nation of  the  advantages  of  lubricating  oils 
would  have  to  physics  and  chemistry.  The  chapter 
contains  illustrations  in  abundance  of  the  psycho- 
logical nature  of  the  forces  that  have  originated 
and  modified  the  use  of  money  through  varied 
estimates  of  convenience.  The  point  of  view, 
however,  is  exclusively  that  of  the  technique  of 
the  economic  cycle — production,  exchange,  divi- 
sion of  labor,  widening  of  the  market,  more 
production,  more  division  of  labor,  more  widen- 
ing of  the  market,  etc.,  etc. 

At  the  close  of  the  chapter  the  author  enters 
upon  that  thus  far  unbounded  sea  of  troubles, 
the  theory  of  value. 

We  discover  at  a  glance,  in  the  light  of  the 
economic  discussion  of  nearly  a  century,  that 
Smith's  treatment  of  the  subject  was  on  a 
relatively  superficial  plane.  That  is,  he  was  dis- 
cussing the  technique,  not  the  psychology,  nor 
the  logic,  nor  the  sociology,  of  money.  This 
appears  at  once  in  his  forms  of  expression ;  e.  g. : 

What  are  the  rules  [sic]  which  men  naturally  observe 
in  exchanging  them  [goods]  either  for  money  or  for  one 
another,   I   shall   now   proceed   to   examine.     Three   rules 


[sic]    determine  what  shall  be  called  the  relative  or  ex- 
changeable value  of  goods. 

The  word  value,  it  is  to  be  observed,  has  two  different 
meanings,  and  sometimes  expresses  the  utility  of  some 
particular  object,  and  sometimes  the  power  of  purchasing 
other  goods  which  the  possession  of  that  object  conveys. 
The  one  may  be  called  "value  in  use/'  the  other,  "value  in 
exchange."  ....  In  order  to  investigate  the  principles 
which  regulate  the  exchangeable  value  of  commodities, 
I  shall  endeavour  to  show,  first,  what  is  the  real  measure 
of  this  exchangeable  value;  or  wherein  consists  the  real 
price  of  all  commodities;  secondly,  what  are  the  different 
parts  of  which  this  real  price  is  composed,  or  made  up; 
and  lastly,  what  are  the  different  circumstances  which 
sometimes  raise  some  or  all  of  these  different  parts  of 
price  above,  and  sometimes  sink  them  below  their  natural 
or  ordinary  rate;  or  what  are  the  causes  which  sometimes 
hinder  the  market  price,  that  is,  the  actual  price  of  com- 
modities from  coinciding  exactly  with  what  may  be  called 
their  natural  price.® 

Three  chapters  follow,  on  the  subjects  thus 
proposed.  It  is  easy  to  point  out,  at  this  late  day, 
that  we  open  up  the  whole  unknown  world  of  the 
psychology  and  sociology  of  value  when  we  begin 
to  observe  that  some  tribes  will  exchange  their 
goods  for  wampum,  and  some  for  paper  promises 
to  pay,  and  some  for  gold  only.  It  is  easy  to  find 
in  Adam  Smith's  discussion  the  points  at  which 
paths  lead  farther  into  the  by-ways  of  these 
subjects  than  he  felt  impelled  to  pry.     As  a  mat- 

•  Pp.  28,  29. 


ter  of  fact,  however,  we  have  to  follow  the  whole 
nineteenth-century  history  of  economic  theory, 
up  to  the  point  where  we  find  John  Stuart  Mill 
declaring  that  the  theory  of  value  had  been 
settled,  and  then  through  another  generation, 
which  encounters  more  difficulties  than  ever  in  the 
theory  of  value — we  have  to  review  this  whole 
evolution,  to  be  aware  of  the  full  measure  of 
difference  between  the  technological  treatment  of 
value  in  The  Wealth  of  Nations,  and  the  prob- 
lems that  present  themselves  to  modern  philoso- 
phers when  they  attempt  to  formulate  the 
phenomena  of  money  and  of  value  in  terms  of 
their  ultimate  relations. 

At  the  same  time,  one  might  easily  mistake 
the  first  paragraph  of  the  fifth  chapter  for  a 
royal  road,  instead  of  an  untrodden  path,  into  the 
broadest  realms  of  social  philosophy.  If  one  did 
not  know  the  sequel,  one  might  with  good 
reason  surmise  that  an  earlier  Karl  Marx  had 
been  discovered.  In  this  paragraph  Smith  is  cer- 
tainly nearer  to  the  fundamental  theorem  of 
Marx  than  to  the  major  premises  of  economic 
theory  and  practice  at  the  present  time,  at  least 
in  England  and  the  United  States.  The  para- 
graph reads  as  follows  : 

Every  man  is  rich  or  poor  according  to  the  degree  in 
which    he    can    afford   to   enjoy   the   necessaries,    conven- 


iences,  and  amusements  of  human  life.  But  after  the  di- 
vision of  labour  has  once  thoroughly  taken  place,  it  is  by 
the  very  small  part  of  these  with  which  a  man's  own 
labour  can  supply  him.  The  far  greater  part  of  them  he 
must  derive  from  the  labour  of  other  people,  and  he 
must  be  rich  or  poor  according  to  the  quantity  of  that 
labour  which  he  can  command,  or  which  he  can  afford  to 
purchase.  The  value  of  any  commodity,  therefore,  to 
the  person  who  possesses  it,  and  who  means  not  to  use  or 
consume  it  himself,  but  to  exchange  it  for  other  commodi- 
ties, is  equal  to  the  quantity  of  labour  which  it  enables  him 
to  purchase  or  command.  Labour,  therefore,  is  the  real 
measure  of  the  exchangeable  value  of  all  commodities.*" 

We  shall  have  occasion  to  observe  presently 
how  Smith  restrained  himself  from  follovs^ing 
this  clue  in  the  direction  w^hich  Marx  afterv^ard 
took.  We  may  notice,  in  passing,  that,  although 
Smith  very  distinctly  reiterated  the  same  theorem 
when  discussing  the  wages  of  labor  (Chap. 
VIII),  he  approached  it  as  an  explanation  of  the 
problem  of  value  in  general  and  of  price  in  par- 
ticular. It  did  not  occur  to  him  as  a  class  ques- 
tion at  all.  He  was  in  the  course  of  explaining 
the  mechanism  of  civilized  exchanges,  and  his  as- 
sumption was  that  the  mechanism  was  working 
normally.  He  was  not  searching  for  a  clue  to  a 
situation  which  he  considered  abnormal.     Prac- 

^^  Cf.  Chap.  VI,  4th  paragraph,  p.  48  ;  also  p.  50,  2d  para- 


tically  no  grievances  were  alleged  against  the 
essential  structure  of  the  economic  system.  Such 
charges  as  were  brought  against  social  arrange- 
ments at  this  time  were  principally  political  in 
form,  whatever  might  have  been  their  implicit 
economic  content.  The  antithesis  of  labor  and 
capital,  as  social  categories,  was  at  that  time 
virtually  unknown.  Labor  and  capital  were 
purely  economic  categories,  and  could  be  treated 
as  abstractions,  whether  on  the  debit  or  credit 
side  of  the  reckoning,  without  provoking  class 
prejudice.  Precisely  the  opposite  was  the  case 
when  Marx  wrote,  and  this  was  at  all  events 
an  important  factor  in  deciding  that  in  Marx's 
hands  a  labor  theory  of  value  became  directly  a 
class  issue  instead  of  a  mere  technical  distinction. 
Then  we  must  make  note  of  another  effect 
upon  Smith's  mind  of  the  presumption  that  the 
system  which  he  tried  to  explain  was  operating 
normally.  That  is,  he  was  phenomenally  uncon- 
scious, as  it  appears  after  a  century  of  closer 
analysis,  that  commonplace,  everyday  exchanges 
could  not  be  accounted  for  by  his  extremely 
naive  theory  of  price.  It  would  be  easy  for  us 
to  make  an  a-priori  argument  to  the  effect  that 
a  man  so  wise  as  he  could  not  possibly  have  over- 
looked, as  he  did,  some  of  the  plain  gaps  between 
the  facts  and  his  explanation;  but  the  reason  is 


evidently  to  be  found  in  his  disregard  of  the  arti- 
ficial and  arbitrary  social  arrangements  by  which 
civilization  complicates  the  simple  order  of  human 
actions.  In  other  words,  when  he  attempted  to 
explain  the  phenomena  of  price,  his  logical  pro- 
cess seems  to  have  been,  first,  a  generalization  of 
the  simplest  conceivable  exchanges  of  the  prod- 
ucts of  labor  into  the  type  of  all  exchanges. 
Then,  instead  of  using  that  generalization  merely 
as  a  search  hypothesis — i.  e.,  to  guide  a  complete 
induction — he  used  it  as  a  principle  for  explain- 
ing all  exchanges  deductively.  Of  course,  this 
amounts  logically  to  begging  the  question  with 
respect  to  every  case  of  exchange  which  is  not 
used  as  a  means  of  testing  the  generalization. 
That  is,  such  a  principle  once  adopted  for  such 
use  is  a  blind  leader  of  the  blind.  It  glosses  over 
the  facts  instead  of  exposing  them.^^ 

When  Smith  says,  for  instance,  "Labour  was 
the  first  price,  the  original  purchase  money  that 
was  paid  for  all  things,"  ^^  he  overpersuades  him- 
self, more  than  he  is  aware,  that  the  same  is  true 
in  the  same  degree  in  all  purchases.  For 
our  present  purpose  it  is  enough  to  point 
out  that  the  result  was  an  intolerable  vagueness 

"  This  would  be  an  instance,  therefore,  illustrating  the 
fault  which  Bagehot  charges  to  Adam  Smith.     Cf.  above,  p.  68. 

"  P.  30. 


and  approximateness  in  his  theory  of  exchanges. 
Thus  he  says:  ^^ 

The  real  price  of  everything,  what  everything  really 
costs  to  the  man  who  wants  to  acquire  it,  is  the  toil  and 
trouble  of  acquiring  it.  What  everything  is  really  worth 
to  the  man  who  has  acquired  it,  and  who  wants  to  dis- 
pose of  it  or  exchange  it  for  something  else,  is  the  toil  and 
trouble  which  it  can  save  to  himself,  and  which  it  can 
impose   upon    other   people." 

It  is  by  no  means  clear  precisely  what  Smith 
meant  by  these  propositions,  but  any  version  that 
might  be  proposed  would  be  ruled  out,  as  an  ade- 
quate formula  of  exchanges,  by  types  of  cases 
which  could  not  be  so  explained.  This,  how- 
ever, has  been  the  theme  of  a  voluminous 
economic  literature  for  nearly  a  century.  Our 
argument  does  not  call  for  an  examination  of  the 
progress  of  analysis  on  this  point.  We  may 
simply  note,  by  way  of  illustration,  that  no 
formulation  of  the  mere  mechanism  of  economic 
exchanges  can  possibly  express  the  essential  facts 
of  value  and  price.  These  are  phenomena  re- 
sulting from  more  than  one  variable.  They  are 
psychical  and  social  as  well  as  mechanical.  There 

"  Ibid. 

"  I  refrain  from  turning  any  light  from  the  "marginal 
utility  theory"  upon  Smith.  According  to  the  outline  of  analy- 
sis of  which  this  essay  is  a  detail,  that  development  must  be 
noticed  in  its  chronological  order. 


is  probably  a  certain  minute  portion  of  the  "toil 
and  trouble"  element  in  every  case  of  value,  but 
whether  it  is  the  "toil  and  trouble"  which  it 
actually  costs  the  producer  to  produce  it,  or  the 
"toil  and  trouble"  which  it  would  cost 
the  purchaser  to  produce  it,  or  the  "toil 
and  trouble"  to  which  the  purchaser  would 
be  liable  if  he  had  to  go  without  it,  actual  ex- 
changes in  civilized  society  could  not  be  expressed 
uniformly  in  terms  of  either  concept.  "Toil  and 
trouble"  as  an  equivalent  for  the  term  "labor 
expended  in  production"  can  in  very  few  cases 
be  an  equally  approximate  measure  of  the  reason 
why  the  seller  sells  and  why  the  buyer  buys. 
Value  or  price  sometimes  has  one  ratio  to  the 
labor-cost  of  production  or  of  reproduction,  and 
sometimes  a  quite  different  ratio.  These  familiar 
considerations  may  be  summed  up  in  the  plati- 
tude: Price  or  value  is  a  phenomenon  of  two 
chief  variables;  viz.,  first,  the  conditions  govern- 
ing the  supply,  and,  second,  the  conditions  gov- 
erning appreciation  as  a  factor  of  demand.^ ^ 

In  a  word,  Smith's  attempt  at  an  explanation 
of  price  and  value  credited  labor-cost  with  too 

"  Cf.  Simmel,  "A  Chapter  in  the  Philosophy  of  Value," 
American  Journal  of  Sociology,  Vol.  V,  p.  577.  For  further 
concrete  illustrations  of  the  lack  of  precision  in  Smith's  labor 
theory  of  value,  see  Bagehot,  Economic  Studies,  pp.  121  flF. 


exclusive  significance;  or,  to  express  the  same 
thing  from  the  other  point  of  view,  it  failed  to 
make  due  allowance  for  the  subjective  and 
social  factors  in  value  and  price.  All  this  has 
meanwhile  been  made  evident  by  the  economists 
themselves,  though  it  is  equally  evident  that  the 
last  word  has  not  been  said,  and  that  the  psy- 
chologists and  sociologists  have  a  function  in 
tracing  the  facts  to  their  ultimate  elements. 

When  Smith  touches  upon  the  relation  of 
wealth  to  anything  beyond  the  immediate  techni- 
calities of  economic  processes,  his  propositions 
affect  the  modern  reader  as  relatively  less  appli- 
cable to  the  real  world  of  today  than  they  were 
to  his  own  time.^^  They  are  approximations  to 
truth,  but  the  approach  was  so  much  closer 
when  he  wrote,  that,  under  the  operation  of 
present  conditions,  some  of  the  paragraphs,  when 
applied  to  our  world,  read  almost  like  satire. 
For  example,  in  immediate  connection  with  the 
sentences  just  quoted,  he  continues: 

Wealth,  as  Mr.  Hobbes  says,  is  power.  But  the  person 
who  either  acquires  or  succeeds  to  a  great  fortune  does 
not  necessarily  acquire  or  succeed  to  any  political  power, 
either  civil  or  military.  His  fortune  may,  perhaps,  afford 
him  the  means  of  acquiring  both,  but  the  mere  possession 
of  that  fortune  does  not  necessarily  convey  to  him  either. 

^'  Again  strengthening  Bagehot's  indictment.  See  above, 
p.  68. 


The  power  which  that  possession  immediately  and  directly 
conveys  to  him,  is  the  power  of  purchasing;  a  certain 
command  over  all  the  labour,  or  over  all  the  produce  of 
labour  which  is  then  in  the  market.  His  fortune  is  greater 
or  less,  precisely  in  proportion  to  the  extent  of  his 
power;  or  to  the  quantity  either  of  other  men's  labour, 
or,  what  is  the  same  thing,  of  the  produce  of  other  men's 
labour,  which  it  enables  him  to  purchase  or  command. 
The  exchangeable  value  of  everything  must  always  be 
precisely  equal  to  the  extent  of  this  power  which  it  con- 
veys to  its  owner." 

At  first  glance  we  are  tempted  to  say  that  all 
this  is  literally  true.  Upon  second  thought  we 
are  impelled  to  add  that  it  is  true  only  with  heavy 
emphasis  upon  the  adverbs  "necessarily,"  "im- 
mediately," "directly,"  etc.  Upon  reconsidera- 
tion of  the  second  thought,  we  conclude  that 
even  with  this  proviso  the  propositions  are  far 
from  adequate. 

In  the  first  place,  the  possession  of  wealth  in 
large  quantities,  in  our  modern  world,  almost 
of  necessity  commits  the  owner  to  participation 
in  affairs,  for  the  sake  of  preserving,  if  not  of 
increasing,  his  wealth,  to  an  extent  that  adds  to 
his  political  or  social  influence  in  ways  which 
could  not  be  achieved  by  his  bare  personality. 
In  the  second  place,  it  is  not  true  that  the  total 
power  over  men  exerted  by  a  syndicate  control- 
ling a  hundred  million  dollars  is  merely  equal  to 

"P.  31. 


the  sum  of  the  powers  exerted  by  a  million 
detached  men,  each  controlling  one  hundred  dol- 
lars.^ ^  Through  the  single  factor  of  suggesti- 
bility, to  take  but  a  single  instance,  massed 
wealth  becomes  a  social  force  which  the  logic  of 
the  labor  necessary  to  produce  or  to  reproduce 
it  utterly  fails  to  explain.  Similar  factors  might 
be  scheduled  in  large  numbers.^ ^ 

Smith  advances  from  his  premises  of  labor 
as  the  ultimate  norm  of  value,  to  money  as  the 
representative  of  labor  in  the  work  of  measuring 
value  in  actual  exchanges.    Thus : 

But  though  labour  be  the  real  measure  of  the  ex- 
changeable  value   of   all    commodities,   it   is   not   that   by 

which  their  value  is  commonly  estimated It  is  more 

natural,  therefore,  to  estimate  its  exchangeable  value  by 
the  quantity  of  some  other  commodity  than  by  that  of  the 
labour  which  it  purchases.  ....  But  when  barter  ceases, 
and  money  has  become  the  common  instrument  of  com- 
merce, every  particular  commodity  is  more  frequently 
exchanged    for   money   than    for    any   other   commodity.^ 

"  If  it  were,  there  would  be  no  more  sense  in  public  atten- 
tion to  the  few  men  who  form  a  trust,  than  in  the  same  sort 
of  public  attention  to  the  unorganized  men  in  a  given  popula- 
tion whose  combined  wealth  would  equal  the  capital  of  that 

"  Cf.  the  case  cited  at  the  beginning  of  The  Wealth  of 
Nations,  Chap.  VI,  p.  47.  Such  trade  is  not  a  measure  of 
comparative  quantities  of  labor  at  all,  but,  on  one  side  at  least, 
almost  purely  of  childish  desire  for  novelties. 

^Pp.  31,  Z2. 


With  this  the  argument  becomes  more  strictly 
technical,  from  the  purely  commercial  point  of 
view,  and  it  thus  passes  out  of  the  range  of  our 
present  inquiry. 

In  Chapter  VI,  on  "The  Component  Parts  of 
Commodities,"  we  come  upon  a  turn  of  the  argu- 
ment which  it  is  by  no  means  easy  to  understand 
or  to  appraise.  The  first  reason  for  this  is  that 
we  cannot  be  sure  how  clearly  Smith  drew  the 
distinction  between  what  is  and  what  ought  to  be 
in  the  processes  of  industry.  That  is,  it  is  by  no 
means  certain  that  he  always  confined  himself  to 
bare  analysis  of  the  occurrences  in  commerce, 
and  we  are  not  always  able  to  tell  when  he 
wanted  to  be  understood  as  merely  formulating 
the  facts,  and  when  he  adds  to  the  facts  his  own 

For  instance,  speaking  of  labor,  in  an  ''ad- 
vanced state  of  society,"  he  says :  "In  this  state 
of  things,  the  whole  produce  of  labour  does  not 
always  belong  to  the  labourer."  ^i  As  a  bald 
statement  of  fact,  this  is  literally  true.  Does 
Smith,  or  does  he  not,  mean  to  imply  that  the 
extent  to  which  it  is  true  is  strictly  in  accordance 
with  equity?  We  can  answer  this  question  only 
vaguely.  Smith  certainly  had  no  thought  of  any 
suf^h  radical  injustice  as  Marx  afterward 
"  P.  so. 


alleged  in  this  connection.  It  is  not  certain  that  he 
would  assert  that  there  was  any  injustice  at  all  in 
the  system  of  distribution  operated  by  the  society 
of  his  day.  This  in  spite  of  the  fact  that  in 
certain  concrete  cases,  like  those  of  the  colliers 
or  the  salters,  he  protested  against  abuses.  He 
had  not  generalized  such  items  into  an  indict- 
ment against  the  industrial  system  at  large.  Ap- 
parently he  assumed  that  the  more  complicated 
system  of  production,  consequent  upon  division 
of  labor,  automatically  invented  a  corresponding 
system  of  distribution,  in  which  the  reward  of 
each  participant  in  production  was  assigned  in 
strict  ratio  with  the  value  of  his  labor  in  creating 
the  product.  Whether  he  would  have  asserted 
precisely  this  or  not,  if  the  question  had  been 
distinctly  proposed,  it  is  evident  that  in  his  mind 
there  was  not  yet  a  problem  of  distribution  which 
was  not  settled  in  advance  by  the  technique  of 
production.  In  the  paragraph  from  which  the 
last  quotation  was  made  Smith  goes  on  to  say: 

Neither  is  the  quantity  of  labour  commonly  employed 
in  acquiring  or  producing  any  commodity  the  only  cir- 
cumstance which  can  regulate  the  quantity  which  it 
ought  commonly  to  purchase,  command  or  exchange  for. 
And  additional  quantity,  it  is  evident,  must  be  due  for  the 
profits  of  the  stock  which  advanced  wages  and  furnished 
the  materials   of   that  labour. 

We  mav  not  be  able  to  divest  our  minds  of 


associations  formed  by  study  of  the  economic 
literature  since  Adam  Smith.  We  may  do  our 
best,  however,  to  judge  him  for  a  moment,  in 
the  cold  light  of  abstract  logic,  without  reference 
to  disturbing  interests.  We  may  claim  to  be 
attempting  at  least  to  think  judicially  when  we 
call  attention  to  a  significant  anomaly  in  this  con- 
fident assertion.  Is  it  not  remarkable  that,  so 
soon  after  declaring  labor  to  be  "the  real  meas- 
ure of  the  exchangeable  value  of  all  commodi- 
ties," ^^  Smith  should  feel  at  liberty  to  take  for 
granted  that  profits  are  as  evidently  due 
to  the  capitalist  as  wages  are  to  the  laborer? 
To  be  sure,  Smith  has  not  in  so  many 
words  said  that  labor  is  the  only  source  of 
wealth.  He  has  merely  said  that  labor  is  the 
only  real  measure  of  wealth.  At  the  same  time, 
his  language  conveys  the  impression  that  in  his 
mind  the  concepts  "source"  and  "measure"  were 
so  associated  that  they  amounted  to  the  same 
thing.  He  said,  a  few  pages  later:  "Wages, 
profit,  and  rent  are  the  three  principal  sources 
of  all  revenue,  as  well  as  of  all  exchangeable 
value."  2^  Again  he  remarks  :  "As  in  a  civilized 
country  there  are  but  few  commodities  of  which 
the  exchangeable  value  arises  from  labour 
only "»4 

=«  Chap.  V,  p.  30.  ^  p.  53.  "  p.  54. 


In  Smith's  mind  the  claim  of  capital  to  profits 
appeared  as  evident  and  immediate  as  the  claim 
of  labor  to  its  wage.  Not  quite  three-quarters 
of  a  century  later,  Marx  launched  his  system  of 
social  philosophy  centered  about  absolute  denial 
of  the  claim  of  capital  to  profits.^^  Yet,  as  we 
have  seen,  the  two  men  seem  to  have  held  nearly 
identical  views  of  labor  as  the  ultimate  measure 
of  right  to  wealth.  How  shall  we  account  for 
the  evolution  of  the  classical  political  economy 
and  Marxian  socialism  from  so  nearly  identical 
conceptions  of  the  relation  of  labor  to  wealth? 

The  truth  probably  is  that  Smith's  views  never 
actually  approaclied  quite  so  near  to  the  major 
premise  of  Marx's  system  as  would  appear  from 
the  things  which  Smith  left  unsaid,  or  from  the 
partially  uncritical  form  of  the  things  which  he 
actually  said.  Judged  by  himself  in  other  con- 
nections, as,  for  example,  the  propositions  last 
cited,  and  Chapter  IX,  "Of  the  Profits  of  Stock," 
Smith  never  entertained  a  doubt  that  the  pay- 
ment of  profits  to  capital  is  as  strictly  and  funda- 
mentally consistent  with  the  natural  order  of 
things  as  the  payment  of  wages  to  labor. 
Whether  this  state  of  things  represented  an  unde- 
tected contradiction  in  Smith's  mind,  or  whether 

^  I  am  referring,  of  course,  to  the  Communist  Manifesto, 
not  to  Capital. 


it  was  merely  an  accident  of  incomplete  formula- 
tion of  his  views,  may  never  be  decided.  This 
much  is  obvious:  If  Adam  Smith  had  intro- 
duced into  economic  theory  a  searching  critique 
of  the  basis  of  the  claims  of  capital  to  profits, 
Marx's  economic  doctrine  would  in  all  probabil- 
ity never  have  put  in  an  appearance.  If  it  had 
appeared,  it  could  hardly,  under  the  supposed 
circumstances,  have  been  fathered  by  a  man  of 
Marx's  intellectual  power.  If  justice  and  only 
justice  had  meanwhile  been  done  both  to  capi- 
tal and  to  labor,  in  the  way  of  working  out  a 
valid  theory  of  when  and  why  and  in  what 
proportion  each  deserves  a  share  of  the  surplus 
product,  Marx  might  still  have  become  a  social- 
ist, but  his  socialism  would  certainly  have  had  a 
different  point  of  detachment  from  orthodox 
economic  theory. 

Profits,  as  the  man  on  the  street  uses  the 
word,  is  a  blanket  term  which  may  include  ele- 
ments as  heterogeneous  as  wages  and  graft  and 
loot.  To  some  of  these  elements  one  capital- 
ist has  as  clear  a  title  as  the  laborer  has  to  his 
wage.  To  others  of  these  elements  another  capi- 
talist has  no  more  title  in  equity  than  the  bank- 
breaker  has  to  his  stealings.  Smith  did  not  feel 
the  necessity  of  a  critique  of  the  title  of  capital  to 
profits,  because  his  attention  was  turned  in  the 


direction  of  the  productive  activities  of  capital- 
ists, and  their  consequent  title  to  their 
reward.  Marx  was  intensely  impressed  by 
the  political  and  commercial  usurpations 
which  sanctioned  arbitrary  claims  of  masters 
and  denied  some  of  the  natural  claims  of 
workmen.  In  Marx's  time  it  was  becoming 
necessary  to  recognize  the  class  cleavage  between 
capitalists  and  laborers.  The  contrasts  between 
their  situations  were  so  sharp  that  it  was  as  easy 
for  Marx  to  assume  that  the  capitalist  is  not  a 
laborer,  and  consequently  not  entitled  to  a  wage 
in  the  form  of  profits,  or  otherwise,  as  it  was 
three-quarters  of  a  century  earlier  for  Smith  to 
assume  that  the  capitalist  is  a  laborer,  and  there- 
fore entitled  to  a  wage  in  the  form  of  profits.^*^ 
Unconsciously,  and  doubtless  with  equal  intention 
to  represent  things  as  they  are,  both  Smith  and 
Marx   started   a    fashion   of   pinning   economic 

^^  It  is  not  true,  and  I  do  not  assert,  that  Marx  utterly 
overlooked  the  industrial  function  of  the  capitalist.  He  ad- 
mitted it,  but  then  he  obscured  it  in  such  a  way  that  it  has 
been  easy  for  his  followers  to  ignore  it,  while  supposing  that 
they  were  following  his  teachings.  Using  the  names  of  Smith 
and  Marx  to  label  tendencies  for  which  they  were  partly 
responsible,  I  point  out  the  mistaken  assumptions  of  the  tend- 
encies, while  I  am  aware  that  neither  Smith  nor  Marx  is 
justly  to  be  charged  with  deliberately  promulgating  the  extreme 
errors  to  which  their  theories  have  lent  force. 


faith  to  a  false  universal.  In  the  former  case  it 
was,  "Every  capitalist  deserves  profits."  In  the 
latter  case  it  was,  **No  capitalist  deserves  profits." 
For  purposes  of  analysis  we  may  separate  the 
logical  from  the  moral  elements  in  modern 
social  theory  and  practice.  Speaking,  then,  of 
the  logical  phase  only,  we  may  say  that  the  phe- 
nomenon of  Marxian  socialism  is  merely,  in 
Hegelian  terms,  the  inevitable  extreme  antithesis 
of  Smith's  extreme  thesis,  and  that  inevitable 
criticism  is  now  ascertaining  the  elements  of 
truth  in  both  false  universals,  and  combining 
them  in  a  synthesis  that  shall  more  closely 
approach  a  true  universal. 

yin  other  words,  the  classical  political  economy 
asked  the  world  to  take  for  granted,  and  make 
permanent,  certain  accidental  differences  between 
individuals  and  classes.  Presently  the  degree  to 
which  these  differences  had  established  them- 
selves presented  anomalies  which  provoked  the 
socialist  protest  in  terms  which  not  only 
denounced  the  anomalies,  but  justified  the  con- 
tention on  grounds  that  at  once  presented  corre- 
sponding anomalies.  In  so  far,  then,  as  the 
classical  political  economy  and  Marxian  socialism 
are  merely  logical  incongruities,  the  issue 
between  them  may  be  reduced  to  a  single  prob- 
lem :  to  discover  the  direct  line  of  truth  between 


the  two  tangents,  ''Every  capitalist  deserves 
profits,"  and  ''No  capitalist  deserves  profits." 

Although  this  problem  has  confronted 
students  of  society  rather  definitely  for  more 
than  a  half-century,  and  although  it  is  difficult 
for  us  to  understand  how  a  man  of  Adam 
Smith's  acumen  could  have  been  so  near  to  it 
without  discovering  the  need  of  undertaking  a 
solution,  it  is  still  uncertain  whether  the  time  is 
ripe  for  securing  an  unprejudiced  hearing  for 
the  purely  abstract  problem.  Vested  interests 
and  contesting  interests  are  too  much  concerned 
about  the  immediate  applications  of  the  possible 
answer  to  the  question.  It  is  hard  to  discuss  it 
without  incurring  suspicion  of  partisanship  on  the 
one  side  or  the  other.  Yet  there  is  no  question 
of  abstract  principle  in  the  whole  realm  of  social 
science  which  deserves  more  immediate  attention. 
Nothing  could  more  directly  relieve  the  present 
tension  between  economic  classes  than  the  dem- 
onstration of  a  valid  generalization,  and  the 
acquiescence  of  all  concerned  in  the  generaliza- 
tion, as  a  substitute  for  the  present  friction 
between  the  two  fallacies  just  noted. 

Having  pointed  out  that  Smith  does  not  hunt 
down  the  ultimate  justification  for  profits,  but 
merely  goes  back  far  enough  to  assert  that  capi- 
tal  would   not   be   employed   if   profits   did   not 


accrue,  we  need  not  attend  further  to  this  step 
in  the  argument.^''^ 

Smith  takes  matters  as  he  finds  them,  and, 
quite  in  the  spirit  of  routine  bookkeeping,  charges 
up  profits  as  one  of  the  items  of  the  cost  of  com- 
modities. To  be  as  specific  as  possible,  he  denies 
that  profits  are  a  species  of  wage,  and  concludes 
that  "the  profits  of  stock  constitute  a  component 
part    altogether    different    from    the    wages    of 

"  It  would  be  quite  in  order,  however,  to  take  this  early 
occasion  for  challenging  the  universality  of  Smith's  generaliza- 
tion, which  has  done  yeoman's  service  throughout  the  period 
of  classical  economics.  In  the  great  majority  of  cases,  as  the 
world  now  goes,  men  would  seek  for  safe  ways  to  hoard  their 
wealth,  if  they  could  not  get  profits  from  investments.  Of 
course,  I  am  now  using  the  term  "profits"  in  the  loose  sense 
which  includes  interest.  How  much  of  this  disposition  would 
yield  to  other  motives,  if  conditions  were  changed  in  quite 
thinkable  ways,  we  need  not  try  to  decide.  We  find  the 
actual  tendency,  however,  to  put  security  above  income  in  the 
case  of  vast  aggregates  of  wealth  today.  Moreover,  men  some- 
times prefer  to  capitalize  some  of  their  wealth  in  economically 
non-productive  improvements — architecture  and  other  fine  arts, 
museums,  endowment  of  teaching,  research  of  all  kinds,  explo- 
ration, experimentation  in  countless  lines,  etc.,  etc.  That  is, 
the  motive  of  acquisition  is  sometimes  overborne  by  non- 
acquisitive  motives.  Even  in  case  the  desire  of  gain  is  upper- 
most, it  is  not  difficult  to  imagine  changes  in  legal  regulations 
which  would  make  investment  with  no  other  return  than  gov- 
ernmental guarantee  of  the  security  of  the  principal,  prefer- 
able in  many  cases  to  the  alternative  of  personal  labor  by  the 
owner  in  making  his  capital  productive.  In  other  words,  the 
principle  that  men  will  not  invest  their  money  without  pros- 


labour,  and  regulated  by  quite  different 
principles."  ^^ 

Labor,  then,  being  the  first  element  in  the 
price  of  commodities,  and  profits  the  second, 
Smith  enters  as  the  third  element  in  the  schedule 
the  item  of  rent : 

In  every  society  the  price  of  every  commodity  finally 
resolves  itself  into  some  one  or  other,  or  all  of  those  three 
parts;  and  in  every  improved  society  all  the  three  enter 
more  or  less,  as  component  parts,  into  the  price  of  the 
far  greater  part  of  commodities.* 

The  question  whether  or  not  rent  is  a  part  of 
price  was   not   allowed  to  stand   as   settled   by 

pective  profits  is  unquestionable  common-sense  for  everyday 
use.  It  would  be  absurd  to  calculate  upon  any  other  pre- 
sumption for  immediate  practical  purposes.  At  the  same  time, 
the  principle  has  no  such  finality  as  has  usually  been  claimed 
for  it.  It  is  subject  to  variations  even  to  the  degree  of  entire 
suspension.  Before  psychology  and  sociology  have  their  final 
reckoning  with  economics,  the  supposition  that  the  prospect  of 
profits  is  an  inexorable  precondition  of  the  employment  of 
capital  will  be  extensively  qualified.  The  fact  that  it  has 
usually  passed  as  final  is  an  incident  of  the  essentially  tech- 
nological character  of  classical  economics.  It  is  enough  merely 
to  mention  here  that  this  item  in  the  account  between  tech- 
nology and  philosophy  is  still  unsettled. 

^  P.  so.  Here  again  Smith  seems  to  be  declaring  not  only 
what  is,  but  what  in  his  opinion  should  be  ;  thus  indicating 
that  he  was  unconscious  of  a  debatable  issue  at  the  point  where 
Marx  made  his  first  assault. 

''Pp.  50,  51. 


Smith's  dictum,  but  we  may  regard  it  as  falling 
so  exclusively  within  the  limits  of  economic  tech- 
nology that  we  need  not  deal  with  it  in  the 
present  study. 

Without  attempting  even  to  indicate  the  possi- 
bilities of  adding  to  Smith's  theory  of  price  by 
observing  the  extra-economic  social  factors  which 
are  more  or  less  frequent  variations  of  the  princi- 
pal factors,  it  may  be  suggested,  in  passing,  that 
premium,  bonus,  prize,  stimulus,  has  been  in 
many  cases  an  important  element  in  prices,  espe- 
cially in  recent  times.  Whether  this  element  has 
been  introduced  wisely  or  unwisely  is  not  in 
question.  The  element  is  there.  Every  patented 
or  copyrighted  article  commands  a  higher  price 
than  .  it  would  without  legal  reinforcement 
of  its  purely  economic  claims,  and  that  incre- 
ment is  the  contribution  which  society  pays  to 
spur  the  individual  to  effort.  It  is  not  always, 
but  often,  more  than  the  market  value  of  his 
labor,  if  the  other  elements  of  price  were  alone 
considered.  A  considerable  fraction  of  the  price  . 
of  tariff-protected  articles  must  be  charged  up 
to  this  item.  Another  element  of  price,  which  ^ 
amounts  to  much  more  in  our  day  than  in  Adam 
Smith's  time,  may  be  scheduled  as  the  cost  of  • 
creating  the  market.  Everything  which  may  be 
put    under    the    general    head    "advertising"    is 


referred  to  in  this  connection.  Whether  such 
items  as  these  are  of  sufficient  importance  to  cut 
much  figure  in  economic  theory,  they  are  signifi- 
cant indexes  of  the  constant  fact  that  economic 
processes  are  always  carried  on  in  a  larger  social 
medium,  and  are  more  or  less  modified  by 
influences  that  are  external  to  the  economic 
process  itself. 

In  this  same  chapter  there  is  incidentally  a 
confession  of  the  naive  view  which  Smith  held  of 
interest.  The  revenue  derived  from  stock 
by  the  person  who  does  not  employ  it  himself,  but  lends  it 
to  another,  is  called  the  interest  or  the  use  of  money. 
It  is  the  compensation  which  the  borrower  pays  to  the 
lender  for  the  profit  which  he  has  an  opportunity  of  mak- 
ing by  the  use  of  money.  Part  of  that  profit  naturally 
belongs  to  the  borrower  who  runs  the  risk  and  takes 
the  trouble  of  employing  it;  and  part  to  the  lender,  who 
affords  him  the  opportunity  of  making  this  profit.^" 

Whatever  is  to  be  said  from  the  sociological 
point  of  view  about  the  theory  of  interest  may 
be  reserved  for  application  to  a  maturer  form  of 
the  economic  statement. 

At  the  close  of  this  sixth  chapter  Smith  recurs 
to  an  item  in  the  general  calculation  to  which  he 
had  already  alluded.     He  says :  ^* 

If  the  society  were  annually  to  employ  all  the  labour 
which  it  [the  annual  produce]   can  annually  purchase,  as 

^  P.  53.     Cf.  pp.  127-31;  174,  175,  below.  '^P.  56. 


the  quantity  of  labour  would  increase  greatly  every  year, 
so  the  produce  of  every  succeeding  year  would  be  of 
vastly  greater  value  than  that  of  the  foregoing.  But  there 
is  no  country  in  which  the  whole  annual  produce  is  em- 
ployed in  maintaining  the  industrious.  The  idle  every- 
where consume  a  great  part  of  it;  and  according  to  the 
different  proportions  in  which  it  is  annually  divided  be- 
tween those  two  different  orders  of  people,  its  ordinary 
or  average  value  must  either  annually  increase  or  dimin- 
ish, or  continue  the  same  from  one  year  to  another. 

This  again  is  a  perception  which  carries  social 
implications  far  in  excess  of  its  meanng  for  mere 
economic  technique.  They  have  not  yet  been 
carefully  developed,  and  they  have  consequently 
not  been  sanely  apphed  to  theories  of  social 
progress.  They  have  been  obscured  by  all  the 
economic  emphases  which  have  been  impelled 
by  an  interest  to  make  it  appear  that  the  word  of 
economic  technology  should  be  the  final  word  in 
social  discussion.  We  shall  have  occasion  to 
recall  this  passage  when  we  come  to  analyze  the 
latest  phases  of  democratic  theory. 

The  deeper  we  get  into  the  current  of  Smith's 
argument,  the  more  difficult  it  is  (not  simply  to 
distinguish  between  factors  which  are  primarily 
technological  on  the  one  hand,  and  primarily 
sociological  on  the  other,  but)  to  resist  the 
temptation  to  abandon  our  purpose  to  deal 
exclusively  with  the  sociological  factors.     Since 


every  economic  process  has  relations  sooner  or 
later  with  all  the  other  social  processes,  the  con- 
creteness  of  the  economic  picture  which  Smith 
almost  invariably  presents  is  a  stimulus  which 
almost  irresistibly  prompts  the  sociologist  to 
accept  it  as  a  challenge  to  trace  out  the  extra-eco- 
nomic social  elements  in  the  phenomena,  even 
when  the  technical  elements  are  obviously  para- 
mount from  the  point  of  view  of  the  author's 

The  next  following  five  chapters  (VII-XI),on 
the  general  subject  of  the  factors  entering  into 
the  price  of  commodities,  might  furnish  texts  for 
many  times  that  number  of  chapters  on  the  social 
variants  of  "natural"  and  "market"  price.  If 
we  should  enter  upon  a  subject  of  this  sort,  how- 
ever, it  should  be  with  the  latest  economic  formu- 
las as  the  brief  in  view  of  which  we  should  draw 
up  our  own  plea.  It  would  introduce  unneces- 
sary confusion  if  we  should  attempt  to  restate  in 
sociological  terms  all  of  Smith's  propositions 
about  price.  In  the  first  place,  they  are  primarily 
technological ,  not  sociological.  In  the  second  place, 
they  appear  in  present  economic  theory  with 
much  revision,  so  that  to  a  considerable  extent 
we  should  be  wasting  our  strength  trying  to  do 
over  again  much  that  the  economists  have  mean- 
while done,  if  we  tried  to  restate  Smith's  doc- 


trines  in  detail.  Our  cue  at  this  point,  therefore, 
is,  first,  to  note  that  the  argument  now  becomes 
relatively  technical,  with  the  extra-economic  fac- 
tors relatively  negligible ;  second,  that  at  the  out- 
set of  this  technical  inquiry  a  prime  sociological 
question  is  waived,  and  that  this  sociological 
question  is  ever  present  with  us  when  we  face  our 
practical  problems  of  correlating  our  economic 
systems  with  the  remainder  of  our  institutions. 
We  must  make  this  last  statement  more  explicit. 
At  the  beginning  of  Chapter  VII  Smith  intro- 
duces the  distinction  between  "natural"  price 
and  "market"  price.     He  says: 

There  is  in  every  society  or  neighbourhood  an  ordinary 
or  average  rate  both  of  wages  and  profit  in  every  different 
employment  of  labour  and  stock.  This  rate  is  naturally 
regulated,  as  I  shall  show  hereafter,  partly  by  the  general 
circumstances  of  the  society  [sic],  their  riches  or  pov- 
erty, their  advancing,  stationary  or  declining  condition; 
and  partly  by  the  particular  nature  of  each  employment. 

There  is  likewise  in  every  society  or  neighbourhood  an 
ordinary  or  average  rate  of  rent,  which  is  regulated 
too,  as  I  shall  show  hereafter,  partly  by  the  general 
circumstances  [sic]  of  the  society  or  neighbourhood  in 
which  the  land  is  situated,  and  partly  by  the  natural  or 
improved  fertility  of  the  land. 

These  ordinary  or  average  rates  may  be  called  the 
natural  rates  of  wages,  profit,  and  rent,  at  the  time  and 
place  in  which  they  commonly  prevail. 

When  the  price  of  any  commodity  is  neither  more  nor 


less  than  what  is  sufficient  to  pay  the  rent  of  the  land,  the 
wages  of  the  labourer  and  the  profits  of  the  stock  em- 
ployed in  raising,  preparing  and  bringing  it  to  market, 
according  to  their  natural  rates,  the  commodity  is  then 
sold  for  what  may  be  called  its  natural  price. 

The  commodity  is  then  sold  precisely  for  what  it  is 
worth,  or  for  what  it  really  costs  the  person  who  brings  it 
to   market 

The  actual  price  at  which  any  commodity  is  commonly 
sold  is  called  its  market  price.  It  may  either  be  above,  or 
below,  or  exactly  the  same  with  natural  price.^^ 

As  a  rough  and  ready  formal  division,  the 
distinction  is  of  course  perfectly  familiar  and 
obvious  and  necessary.  When  we  attempt  to 
apply  it  to  a  concrete  case  of  price  in  a  modern 
community,  however,  we  encounter  a  difficulty, 
not  with  the  formal  principle  of  division,  but  with 
questions  of  fact  which  should  determine  the 
application  of  the  principle.  Perhaps  the  essence 
of  the  matter  may  be  suggested  by  a  mere  verbal 
correction.  If  we  substitute  for  the  phrase 
"natural  price"  the  term  "customary  price,"  we 
at  once  raise  the  question  whether  there  is  a  dif- 
ference between  the  two  concepts.  If  we  think 
the  question  through,  there  is  little  room  for 
doubt  that  Smith's  phrase  harbors  a  fundamental 
fallacy.  The  "customary,"  in  price  as  in  other 
things,  may  be   far  from  the  "natural,"  if  we 

''  Pp.  55,  56. 


mean  by  ''natural"  that  which  is  most  nearly  in 
accord  wtih  the  permanent  or  essential  nature  of 
things.  For  instance,  suppose  a  community  has 
for  a  generation  been  paying  for  its  illuminating 
gas  a  price  which  includes  a  profit  on  watered 
stock  equal  to  two  or  three  times  the  market 
rates  of  interest  on  the  actual  capital  invested. 
If  we  adopt  the  contention  of  the  gas  company 
that  it  is  entirely  within  its  rights  in  watering 
its  stock  and  in  treating  the  fictitious  investment 
as  though  it  were  real,  then  it  would  make  no 
difference  whether  we  used  the  phrase  "natural" 
or  "customary"  price.  In  other  words,  so  soon 
as  prices,  whether  in  the  element  of  rent,  or 
profits,  or  wages,  come  to  be  in  question  on 
grounds  of  equity,  it  makes  all  the  difference  in 
the  world  with  our  decision  how  much  of  the 
variable  and  arbitrary  "general  circumstances  of 
the  society"  we  assume  to  be  natural  and  neces- 
sary, and  so  inflexible  factors  of  price. 

All  the  mooted  social  questions  of  today  over 
economic  claims  of  various  classes  are  to  a, 
greater  or  less  degree  contests  over  the  claim 
that  vested  or  customary  rights  are  natural 
rights.  There  is  never  a  question  between  de- 
mocracy and  privilege,  especially  if  the  privilege 
has  actually  been  exercised,  in  which  it  is  not 
contended,  openly  or  tacitly,  on  the  side  of  the 


privilege,  that  the  privilege  is  in  accordance  with 
the  eternal  nature  of  things.  At  this  moment 
the  extreme  "stand-patters"  on  the  subject  of  the 
American  tariff  do  their  best  to  make  their  fel- 
low-citizens believe  that  the  bonus  which  the  law 
gives  them  is  a  price  which  they  have  as  natural 
a  right  to  collect  of  the  consumer  as  the  laborer 
has  to  collect  his  hire.  The  men  who  have  fixed 
railroad  rates  in  the  past  want  perpetual  freedom 
to  make  rates  without  governmental  control,  and 
they  claim  that  such  freedom  is  "natural,"  while 
governmental  control  is  unnatural. 

That  is,  all  the  conventionalities  which  fix  the 
standard  of  living  in  a  given  community  may  for 
a  long  time  be  taken  for  granted,  and  accord- 
ingly the  wage  of  unskilled  labor  may  be  less  for 
a  month  in  Russia  than  the  wages  for  the  same 
class  of  labor  may  be  for  an  eight-hour  day  in 
some  parts  of  the  United  States.  The  Russian 
employer  and  the  American  employee  could  not 
be  brought  to  an  agreement  as  to  which  of  these 
rates  of  wages,  if  either,  represented  the  "natural" 
price  of  labor.  So  far  as  the  bookkeeping  of  a 
particular  industry  is  concerned,  or  the  condi- 
tions of  competition  in  a  given  market,  custom- 
ary price  may  be  treated  as  "natural"  price.  But 
the  moment  price  becomes  a  moral  question,  by 
being  brought  into  the  arena  of  conflict  between 


groups  with  antagonistic  interests  in  distribution, 
then  the  previous  question  is  always  in  order; 
viz. :  How  much  of  customary  market  valuation 
is  not  natural  but  unnatural?  To  what  extent 
have  the  conventionalities  of  society  interfered 
with  the  natural  equilibration  of  the  claims  of 
all  the  members  of  society? 

Again  we  must  remind  ourselves  that  at 
Adam  Smith's  time  there  was  a  minimum  of 
occasion  for  imagining  that  there  could  or  should 
ever  be  any  considerable  modification  in  the  laws 
of  property  in  Great  Britain.  British  institu- 
tions, on  their  strictly  economic  side  at  least, 
as  distinguished  from  the  politico-economic 
phases  as  involved  in  such  a  question  as  restricted 
or  free  foreign  trade,  must  have  seemed  to  Smith 
nearly  as  firmly  settled  as  the  rock-bound  coasts 
of  the  kingdom.  It  cost  him  no  stretch  of  the 
imagination,  no  stultification  of  mind  or  con- 
science, to  assume  that  the  customary  social 
stratification,  from  landed  gentlemen  to  navvy, 
was  in  rough  correspondence  with  natural  law. 
In  the  middle  of  the  nineteenth  century,  on  the 
contrary,  especially  in  Germany,  doubts  had 
already  disturbed  such  sunny  satisfaction.  To- 
day the  operation  of  the  same  principles  which 
Smith  took  for  granted  produces  anomalies 
which  no  judicially  minded  person  can  overlook. 


We  have  come  to  understand  that  there  are  really 
three  categories  of  price,  instead  of  two.  We 
may  call  these  "customary  price,"  ''market  price," 
and  "normal  price."  The  last  phrase  means  just 
what  the  words  might  have  meant  to  Adam 
Smith,  minus  the  implication  that  the  third  and 
the  first  categories  necessarily  correspond. 
Everyone  who  perceives  that  the  last  valuation 
of  everything  in  this  world  must  be  in  terms  of 
people,  not  in  terms  of  commodities,  is  beginning 
to  draw  the  inference  that  there  is  always  an 
open  question  whether  the  current  scale  of  prices 
takes  sufficient  account  of  human  values  to 
approach  as  near  as  possible  to  normal  prices. 

I  am  not  at  all  sure  that  socialists  of  the 
Marxian  or  any  other  type  are  really  nearer  in 
sympathy  than  Adam  Smith  was  to  the  practical 
application  of  the  human  measure  of  value.  So- 
cialism seems  to  be,  in  fact,  in  the  aggregate,  less 
a  contention  for  application  of  deeper  moral 
principles,  than  a  contention  for  admission  of  a 
larger  number  of  people  to  a  share  in  the  divi- 
dends of  the  moral  principles  than  now  prevail  in 
society.  Socialism  does  not  seem  to  be  really  a 
program  of  more  respect  for  men,  but  rather 
of  respect  for  more  men.  So  far  as  it  goes,  even 
this  is  an  impulse  in  the  direction  ^of  more  au- 
thentic democracy.     More  radically  democratic, 


however,  than  any  sociahstic  principle,  is  the 
perception  that  the  capacity  of  people  to  convert 
material  goods  and  opportunities  into  higher 
values  is  the  last  measure  of  price  which  it  is 
possible  to  apply.  It  is  always  an  open  social 
question  whether  there  are  artificial  and  arbi- 
trary restrictions  of  the  equal  freedom  of  all 
to  exercise  this  capacity.  So  far  as  a  disposition 
to  entertain  this  question  is  an  item  in  "the 
general  circumstances  of  the  society,"  a  force  is 
at  work  tending  either  to  strengthen  prices, 
because  they  approximate  a  scale  dictated  by 
due  appraisal  of  human  values,  or  to  rearrange 
prices  with  more  regard  for  the  human  term  in 
the  calculation. 

There  is  no  fig-leaf  of  economic  shame  dis- 
creetly drawn  over  Smith's  admission  that  all  the 
products  of  labor  belonged  to  the  laborer  till 
private  property  in  land  and  the  accumulation  of 
stock  made  a  new  situation. ^^  Although  Smith 
regarded  these  as  artificial,  in  a  sense  contrasted 
with  primitive,  it  does  not  seem  to  have  occurred 
to  him  that  they  were  artificial  in  a  sense  opposed 
to  his  term  "natural"  any  more  than  the  division 
of  labor  itself.  There  was  nothing  to  excuse 
about  one  of  these  phenomena  more  than  about 
all.     In  spite  of  keen  vision  for  what  he  would 

'^  Chap.  VIII,  p.  65. 


regard  as  the  accidents  of  a  system  which  was 
essentially  rational  or  "natural,"  in  spite  of  such 
details  as  that,  "We  have  no  acts  of  parliament 
against  combining  to  lower  the  price  of  work; 
but  many  against  combining  to  raise  it,"  ^^ 
Smith  accepted  the  ground-plan  of  British  eco- 
nomic institutions  as  unassailable.  The  infer- 
ences drawn  by  Marx  from  premises  so  nearly 
identical  with  those  of  Smith  would  have  seemed 
to  the  latter  so  preposterous  that  he  was  under 
no  sort  of  embarrassment  in  stating  those  prem- 
ises with  perfect  frankness.  No  social  phenom- 
ena had  appeared  to  make  Smith  doubt  that  in 
general  the  capitalist's  claim  to  profits  and  the 
landlord's  claim  to  rent  is  as  clear  as  the  laborer's 
claim  to  wages.  In  other  words,  slightly  varying 
our  previous  statement,  Smith  did  not  doubt 
that  the  wage  system  was  essentially  a  righteous 
system,  in  spite  of  the  fact  that  it  permitted  a 
part  of  the  product  to  go  to  the  landlord,  and 
another  part  to  the  capitalist.  The  reasons  which 
seem  to  account  for  this  apparent  anomaly  in 
Smith's  thinking  have  already  been  referred  to. 
They  may  be  grouped  under  two  heads:  first, 
the  incomplete  differentiation  of  laborer,  capital- 
ist, and  landlord  at  Adam  Smith's  time;  second, 
the  virtual  universality  of  the  functionally  useful 
»*  P.  67. 


landlord  and  capitalist,  wherever  the  differentia- 
tion had  occurred. ^^  That  is,  there  was  hardly 
more  room  for  doubt  that  the  typical  country 
gentleman  was  an  active  part  of  the  system  of 
agricultural  production  than  that  the  farm  hands 
on  the  estate  were  economically  productive;  and 
there  was  scarcely  more  doubt  that  the  typical 
capitalist  was  an  active  factor  in  the  production 
of  manufactured  goods  than  there  was  that  the 
hands  in  the  mills  were  producers.  To  express 
it  in  another  way,  at  Adam  Smith's  time  it  was 
in  general  true  that  a  man  was  a  landlord  because 
he  was  a  producer,  and  a  producer  because  he 
was  a  landlord.  In  like  manner,  another  man 
was  a  capitalist  because  he  was  a  producer,  and 
a  producer  because  he  was  a  capitalist.  In  either 
case  the  landlord  or  the  capitalist  was  doing 
work  that  would  have  to  be  done  by  somebody, 
if  the  given  line  of  industrial  efficiency  were 
maintained,  regardless  of  the  political  and  legal 
arrangements  that  adjusted  property  rights  with- 
in the  industrial  system  of  the  country.  There 
was  a  minimum  of  occasion  for  the  kind  of 
analysis  which  would  press  the  question :  Is  the 
title  of  the  landlord  and  the  capitalist  to  a  part 
of  the  product  based  on  their  function  in  produc- 
tion; that  is,  are  these  types  merely  varieties  of 

*'  Cf.  pp.  149-52,  below. 


laborers,  worthy  of  their  hire  like  other  laborers; 
or  is  that  title  based  merely  on  their  legal  rela- 
tions to  the  politico-economic  system  through 
the  institutions  of  property?  Since  this  ques- 
tion was  not  distinctly  presented,  it  was  easy  for 
the  economic  theorist  to  entail  upon  his  successors 
the  confusion  which  we  discussed  above  from  a 
slightly  different  point  of  view.  Landlord  and 
capitalist,  as  landlord  and  capitalist,  were  not 
sharply  distinguished  from  landlord  and  capital- 
ist as  laborers.  So  it  came  about  that  a  certain 
odor  of  sanctity  was  thrown  around  the  purely 
legal  claims  of  landlord  and  capitalist,  and  this 
presumption  excluded  from  economic  theory 
unprejudiced  examination  of  the  difference 
between  their  claims  as  landlord  and  capitalist 
and  their  claims  as  laborers.  Thus  economic 
theory  failed  to  discriminate  at  the  outset  between 
the  mere  problem  of  accounting,  between  differ- 
ent partners  in  a  productive  process,  and  the 
moral  problem  of  property  rights  based  on  any 
other  grounds  than  the  relative  value  of  services 
performed  by  different  individuals.  This  sup- 
pressed moral  element  in  social  theory  was  a  part 
of  the  force  that  presently  exploded  in  the  form 
of  Marxian  socialism.  It  has  also  furnished  a 
large  fraction  of  the  energy  of  general  sociology. 
We  mav  reduce  the  statement  of  the  abortive- 


ness  of  early  economic  theory  to  this  form :  There 
are  questions  of  fact  and  of  principle  between 
claims  to  material  goods  based  on  labor,  and 
claims  based  on  conventionality.  Th^  former 
claims  we  may  call  essential;  the  latter  we  may 
call  institutional.  Traditional  economics  assumed 
that  in  their  main  lines  essential  and  institutional 
economic  claims  corresponded.  As  the  social 
system  became  more  developed,  the  phenomena 
of  property  presented  anomalies  which  impeached 
this  assumption.  The  differences  between  the 
classical  economists  and  all  their  critics  run  back 
to  this  one  contrast.  The  latter  have  all  along 
insisted  that  the  impeachment  ought  to  be  tried. 
The  former  have  protested  that  it  should  not. 

Thus  the  issues  between  technical  economics 
and  social  philosophy  in  general  are  not  economic 
questions  if  we  confine  the  term  to  classical 
definition.  They  are  moral  questions  which 
economists  have  supposed  to  be  coterminous  with 
principles  of  economic  technology.  For  instance, 
there  is  really  no  difference  between  Smith  and 
Marx  on  the  economic  elements  in  the  principles 
of  profits,  nor  between  Ricardo  and  Marx  on  the 
economic  elements  in  the  principles  of  rent.  The 
quarrels  between  them  arise  over  the  righteous- 
ness of  social  arrangements  which  impute  to 
classes    of    individuals    economic    functions    in 


accordance  with  the  principles,  and  which  assign 
to  those  classes  corresponding  shares  of  goods, 
while  their  actual  share  in  the  economic  process  is 
questionable.  Economic  theory  became  conse- 
quently a  supporter  of  the  system  which  assumed 
the  inviolability  of  the  existing  institutions  of 
property  in  land  and  capital.  Demanding  that  this 
question  of  inviolability  be  begged  at  the  outset, 
economic  theory  made  scientific  impeachment  of 
those  institutions  merely  a  question  of  time. 
Bent  on  blocking  any  inquiry  which  probed  back 
of  the  righteousness  of  the  ground-plan  of  our 
institutions  of  property,  economic  theory  has 
been  driven  to  amusing  dodgings  from  pillar  to 
post  in  recourse  to  one  explanation  after  another 
which  sought  to  justify  vested  rights  on  any  other 
ground  than  a  social-service  basis;  i.  e.,  that  the 
individual  who  enjoys  the  rights  fulfils  his  part 
of  the  social  give-and-take  by  being  a  worker  in 
return  for  what  he  gets. 

Again  we  point  out  the  probability  that  there 
would  have  been  no  Marxism,  except  as  a  politi- 
cal movement,  if  economic  theory,  from  Adam 
Smith's  time,  had  squarely  faced  the  problem: 
What  are  the  primary  economic  elements,  and 
what  are  the  accidental  conventional  elements,  in 
our  system  of  property  rights?  We  should  prob- 
ably have  been  spared  a  large  part  of  the  confu- 


sion  which  permits  certain  types  of  social  agi- 
tators to  treat  all  private  ownership  of  land  as  in 
principle  and  in  practice  absentee  landlordism, 
and  all  private  ownership  of  capital  as  in  prin- 
ciple and  in  practice  stock-watering  and  gambling. 
Modern  sociology  is  a  necessary  protest  as  much 
against  the  extreme  prejudice  of  the  economists 
as  of  the  socialists.^^ 

Another  of  the  passages  which  provoke  specu- 
lation as  to  the  direction  which  Adam  Smith's 
theory  would  take  if  he  lived  in  our  time  occurs 
in  this  chapter. ^^    It  is  as  follows : 

Is  this  improvement  in  the  circumstances  of  the  lower 
ranks  of  the  people  to  be  regarded  as  an  advantage  or  as 
an  inconvenience  to  the  society?  The  answer  seems  at 
first  sight  abundantly  plain.  Servants,  labourers,  and 
workmen  of  different  kinds,  make  up  the  far  greater  part 
of  every  great  political  society.  But  what  improves  the 
circumstances  of  the  greater  part  can  never  be  regarded 
as  an  inconveniency  to  the  whole.  No  society  can  surely 
be  flourishing  and  happy,  of  which  the  far  greater  part 
of    the    members    are    poor    and    miserable.      It    is    but 

'"  The  beginnings  of  the  classical  subsistence-minimum 
theory  of  wages,  as  contained  in  Chap.  VIII  of  The  Wealth  of 
Nations,  may  be  passed  over  in  this  discussion,  for  the  reason 
that  the  technological  aspects  are  made  foremost,  and  the  moral 
question  is  not  allowed  to  emerge.  Thus  the  subject  in  this 
form  is  an  illustration  of  the  above  remarks  about  the  sup- 
pression of  the  paramount  issue.  The  beginnings  of  the  wage- 
fund  theory  are  also  in  this  chapter  (p.  70). 

^P.  80. 


equity,  besides,  that  they  who  feed,  clothe  and  lodge  the 
whole  body  of  the  people,  should  have  such  a  share  of 
the  produce  of  their  own  labour,  as  to  be  themselves  toler- 
ably well  fed,  clothed  and   lodged.^^ 

The  only  comment  necessary  is  that  in  the 
author's  mind  the  phenomena  of  economic  dis- 
tribution still  had  something  to  do  with  ''equity.'' 
If  he  had  believed  that  anything  like  the  "iron 
law  of  wages,"  which  later  theory  asserted,  told 
the  whole  story,  such  a  reference  to  "equity" 
would  have  been  an  impertinence.  The  passage 
immediately  following  this  paragraph  may  be 
called  the  prologue  to  Malthus'  Essay. 

The  discussion  of  "The  Profits  of  Stock,"  in 
Chapter  IX,  continues  the  presumption  that  there 
is  no  occasion  for  inquiry  back  of  the  prevailing 
British  economic  system.  The  chapter  is  in  no 
sense  an  investigation  of  the  social  basis  of  the 
system.  It  is  merely  an  explanation  of  the  way 
the  system  works.  The  principal  theorem  is  in 
the  first  two  paragraphs,  viz.  : 

The  rise  and  fall  in  the  profits  of  stock  depend  upon 
the  same  causes  with  the  rise  and  fall  in  the  wages  of 
labour,  the  increasing  or  declining  state  of  the  wealth  of 
the  society;  but  these  causes  affect  the  one  and  the 
other  very  differently. 

The  increase  of  stock,  which  raises  wages,  tends  to 
lower  profit.     When  the  stocks  of  many  rich  merchants 

^  Italics  mine. 


are  turned  into  the  same  trade,  their  mutual  competition 
naturally  tends  to  lower  its  profits;  and  when  there  is  a 
like  increase  of  stock  in  all  the  different  trades  carried 
on  in  the  same  society,  the  same  competition  must  pro- 
duce the  same  effect  in  them  all. 

We  have  said  above  all  that  is  necessary  to 
mark  the  relation  between  these  purely  techno- 
logical propositions  and  the  more  fundamentally 
moral  question  of  principles  of  distribution.^^ 
Neither  the  present  propositions,  nor  the  subse- 
quent controversies  about  the  relations  which  they 
purport  to  formulate,  are  our  direct  concern. 
They  affect  this  argument  only  when  they  leave 
the  field  of  economic  technique  and  touch  upon 
antecedent  principles  of  social  organization. 
Smith  recognizes  the  extra-economic  variants  in 
the  returns  from  capital  in  such  instances  as 
these : ^^ 

A  defect  in  the  law  [sic]  may  sometimes  raise  the 
rate  of  interest  considerably  above  what  the  condition 
of  the  country,  as  to  wealth  or  poverty,  would  require. 
When  the  law  does  not  enforce  the  performance  of  con- 
tracts, it  puts  all  borrowers  nearly  upon  the  same  footing 
with  the  bankrupts  or  people  of  doubtful  credit  in  better 
regulated  countries.  The  uncertainty  of  recovering  his 
money  makes  the  lender  exact  the  same  usurious  interest 
which  is  usually  required  from  bankrupts.  Among  the 
barbarous  nations  who  overran  the  eastern  provinces  of 

'•P.   119,   et  passim.  "P.  98,   Chap.  IX. 


the  Roman  Empire,  the  performance  of  contracts  was 
left  for  many  ages  to  the  faith  of  the  contracting  parties. 
The  courts  of  justice  of  their  kings  seldom  intermeddled 
in  it.  The  high  rate  of  interest  which  took  place  in  those 
ancient  times  may  be  partly  accounted  for  from  the  same 

This  passage  not  only  recognizes  that  less 
effective  legal  administration  affects  property- 
rights  unfavorably,  but  it  also  implies  that  a  more 
effective  legal  administration  affects  property 
rights  favorably. ^^  Here  again  is  a  neglected 
point  of  departure  for  a  wider  inquiry  than 
classical  economic  theory  or  practice  looked  upon 
with  favor.  We  may  say  that  the  problem  was 
near  at  hand  :  Under  what  circumstances,  and  in 
accordance  with  what  major  and  minor  prin- 
ciples, does  it  become  the  public  interest  that  the 
operation  of  economic  self-interest  should  be 
modified  by  positive  law?  Instead  of  facing  the 
problem  candidly,  the  whole  prestige  of  classical 
economics  was  exerted  in  the  nineteenth  century 
to  discredit  every  tendency  to  entertain  this 
fundamental  question.  The  assumption  of  classi- 
cal economics  was  that  all  the  laws  which  fortified 
existing  property  interests  were  "natural,''  while 
all  laws  which  might  tend  to  readjust  existing 

"  Chapter   X,   Part  II,  is  another  illustration  of  the  same 


property  interests  would  be  unnatural.'*^  This 
was  both  moral  and  logical  fallacy.  In  theory  it 
begged  the  question,  and  in  practice  it  exerted  the 
right  of  might.  To  that  extent  it  reduced  eco- 
nomic theory  and  practice  to  the  status  of  an 
untenable  social  provincialism.  The  human  per- 
ception that  people  are  more  than  property  was 
bound  sooner  are  later  to  repudiate  that  provin- 
cialism. Marxian  socialism  is  the  extreme  anti- 
thesis of  the  smug  assumption  of  the  classicists 
that  conventional  property  rights  are  the  normal 
standard  of  public  interests.  Modern  sociology 
protests  against  the  tendency  at  either  extreme  to 
treat  the  question  as  an  issue  to  be  settled  by 
measure  of  strength  between  classes.  It  is  a  ques- 
tion of  social  economy  in  the  deepest  sense.  It  is 
a  question  of  the  ways  and  means  of  allowing  all 
human  interests  to  realize  themselves  most  har- 
moniously. Whether  the  property  institutions  of 
a  given  society  afford  the  fairest  field  for  pro- 
portionate realization  of  all  the  social  interests, 
is  a  question  that  will  always  be  in  order,  just  as 

"  This  proposition  is  apparently  contradicted  by  the  sturdy 
fight  of  Adam  Smith  and  some  of  his  successors  for  "free 
trade."  The  proposition  is  essentially  correct,  in  spite  of  this 
and  other  seeming  exceptions.  The  wealth  interests  of  any 
country  will  easily  convince  themselves  that  it  is  "natural" 
for  the  laws  to  give  them  more  favor,  but  they  will  seldom 
see  anything  "natural"  in  limitations  of  their  scope. 


much  as  the  engineering  question  whether  power 
and  friction  in  a  given  machine  have  been  reduced 
to  the  most  efficient  adjustment. 

The  initial  fallacy  of  the  system  which  de- 
veloped from  Smith's  beginnings  was,  not  that  it 
denied  the  existence  of  factors  which  vary  the 
operation  of  economic  self-interest,  but  that  it 
assumed  a  permanent  equilibrium  between  these 
factors,  a  static  condition  so  far  as  division  of 
function  between  economic  and  political  forces 
was  concerned;  and  it  resisted  all  impulses  to 
test  the  validity  of  the  assumption.  Whether 
increasing  divergence  of  economic  class  interest 
had  provoked  attacks  upon  this  position  or  not, 
it  is  logically  so  naive  that  it  could  not  perma- 
nently have  escaped  detection  as  obvious  sophis- 
try. The  most  rudimentary  sociological  analysis 
distinguishes  between  social  conditions  that  are 
due  principally  to  the  action  of  unmixed  eco- 
nomic forces,  and  those  that  are  affected  by  the 
volitions  of  individuals  or  groups.  In  so  far  as 
social  conditions  are  a  product  of  the  latter  fac* 
tor,  or  are  susceptible  of  modification  by  the 
latter  factor,  it  is  always  a  pertinent  problem, 
first,  to  what  extent  the  conditions  are  due  to 
human  will,  and,  second,  to  what  extent,  and  by 
what   means,    further   exercise    of   human    will 


might  be  in  accordance  with  the  entire  system  of 
human  interests. 

The  failure  of  classical  economics  to  remain 
on  the  level  of  Adam  Smith's  moral  philosophy 
is  not  to  be  found  primarily  in  its  specialization 
upon  economic  technology,  but  in  its  dog-in-the- 
manger  spirit  and  practice  toward  the  larger 
questions  than  those  of  mere  economic  technique, 
which  had  a  fairly  intelligent  place  in  Smith's 
thinking.  By  estopping  investigation  of  these 
larger  relations  of  economic  activity,  the  classical 
economists  turned  a  dignified  division  of  Smith's 
system  into,  not  only  a  dismal,  but  a  dangerous, 
sectarianism.  It  became  a  class  litany.  As  a 
program  it  was  relentless  selfishness.  As  a 
theory  it  was  bigoted  obscuration.  Only  persons 
futile  enough  to  be  convinced  by  such  perver- 
sions could  be  surprised  at  the  reaction  which 
appeared  in  the  whole  scale  of  dissent,  from  the 
cautious  inquiries  by  which  John  Stuart  Mill 
first  gave  sign  that  he  was  beginning  to  see  with 
his  own  eyes,  to  the  vagaries  of  the  most  irre- 
sponsible anarchist.  If  the  economists  had  culti- 
vated the  whole  philosophy  of  their  teacher, 
instead  of  an  abstracted  section  of  it,  much  of 
the  occupation  of  socialistic  sectarians  would 
have  been  gone.  If  the  economists  had  not  sup- 
pressed the  truth  on  the  one  hand,  there  would 


have  been  less  plausibility  in  the  visions  which 
the  socialists  are  exploiting  on  the  other.  There 
are  functional  relationships  in  society  which  are 
neither  fixed  by  economic  self-interest  alone  nor 
prejudiced  by  the  play  of  puerile  speculation.  A 
social  philosophy  more  comprehensive  than 
merely  economic  opportunism,  is  bound  to  make 
progress  toward  discovery  and  interpretation  of 
these  relations,  and  toward  justification  of  social 
programs  which  aim  to  secure  for  each  of  the 
distinct  social  interests  its  due  ratio  of  attention 
in  the  conduct  of  life. 

In  connection  with  Chapter  X,  "Of  Wage  and 
Profit  in  the  Different  Employments  of  Labour 
and  Stock,"  it  should  be  pointed  out  that  Smith 
makes  more  of  the  labor  element  in  the  so-called 
profits  of  some  employments  than  has  been 
explicit  in  many  of  the  later  economists.  Thus 
in  a  typical  case  of  small  trade,  he  says:  "The 
greater  part  of  the  apparent  profit  is,  in  this  case 
too,  real  wages."  ^^  Economic  theory  would  have 
kept  ofif  another  lea  shore  if  it  had  adhered  to  the 
hypothesis  that  all  legitimate  income  is  essentially 
a  wage,  the  hire  of  labor  rendered.  It  would 
then  have  had  a  credible  basis  for  criticism  of  all 
incomes  in  the  degree  in  which  they  are  dispro- 
portionate with  services  rendered  by  the  persons 

"  I,  p.   1 1 6. 


drawing  the  income.  The  fact  has  been,  how- 
ever, that,  as  a  rule,  the  rent  and  interest  ele- 
ments of  income  have  been  defended  less  on  the 
ground  of  service  performed  by  landlord  or  capi- 
talist than  for  one  or  more  of  several  alleged 
reasons  which  are  less  convincing.  To  be  sure, 
it  is  often  easy  to  detect  in  these  arguments  more 
or  less  surreptitious  recourse  to  the  claim  that  the 
landlord  or  the  capitalist  is  a  laborer,  and  there- 
fore worthy  of  his  hire.  There  is  very  seldom 
any  sign  on  the  part  of  theorists  who  smuggle  in 
this  appeal,  that  they  are  aware  that,  so  far  as  the 
consideration  is  pertinent  at  all  in  a  given  case, 
it  sanctions  the  income  of  the  given  capitalist  or 
landlord,  but  it  does  not  touch,  one  way  or  the 
other,  the  case  of  true  economic  interest  or  rent. 
This  has  been  pointed  out  with  something 
approaching  finality  by  Bohm-Bawerk,^*  but  it  is 
impossible  to  determine  to  what  extent  respon- 
sible economists  even  today  have  assimilated  the 
perception  that  the  equities  of  interest  and  rent, 
in  the  strict  sense,  are  not  illuminated  in  the 
slightest  degree  by  proof  that  given  types  of  capi- 
talists and  landlords  are  entitled  to  wage.  Not 
even  Marxians  who  understand  their  teacher 
deny  that  the  Astors  and  Rothschilds  are  entitled 
to  a  wage  for  every  stroke  of  labor  that  they  per- 

**  Capital  and  Interest. 


form.  Modern  questions  of  distribution  turn 
upon  those  factors  of  income  which  cannot  by 
any  jugglings  of  terms  or  stretchings  of  imagina- 
tion be  accounted  for  as  returns  for  services 

Chapter  XI,  "Of  the  Rent  of  Land,"  is  even 
more  than  the  chapters  on  wages  and  profits  an 
account  of  what  is  ordinarily  visible  in  trans- 
actions between  the  parties  concerned — in  this 
case  landlord  and  tenant.  As  in  the  case  of 
profits,  there  is  no  indication  that  the  thought  of 
examining  the  question  why  a  landlord  is  entitled 
to  rent  at  all  had  ever  occurred  to  Smith.  The 
relation  of  landlord  and  tenant,  and  the  payment 
of  rent  by  the  latter  to  the  former,  apparently 
seemed  to  him  hardly  less  a  part  of  the  neces- 
sary order  of  things  than  the  relation  of  children 
to  parents.  In  so  far  as  the  differences  between 
Smith's  analysis  of  rent  and  Ricardo's  are  details 
of  economic  technology,  they  are  not  pertinent  to 
our  purpose.  When  we  make  the  same  inquiry 
about  Ricardo's  relation  to  the  problems  of  soci- 
ology which  we  are  now  making  about  Adam 
Smith,  it  will  be  proper  to  ask  whether  Ricardo 
was  more  or  less  conscious  than  Smith  of  the 
social  factors,  as  distinguished  from  differences 
of  fertility,  which  the  phenomena  of  rent  brought 
into  question. 


The  entire  remainder  of  Book  I  is  clear  evi- 
dence of  the  essentially  technological  character 
of  tb^  whole  treatise.  Pages  183-261,  in  particu- 
lar, contain  material  which  would  be  entirely  in 
place  on  the  editorial  pages  of  a  financial  or 
trade  journal.  These  pages,  with  those  that 
follow  (261-73),  are  primarily  valuable  today  as 
material  for  history  of  the  development  of  that 
division  of  economic  technology  in  which  Ricardo 
may  be  said  to  have  formulated  the  Newtonian 
laws.  All  through  this  technical  discussion  hints 
occur  pointing  to  the  extra-  or  semi-economic 
factors  which  have  to  be  accounted  and  pro- 
vided for,  even  in  a  predominantly  economic  con- 
sideration of  rent.  None  of  these  are  sufficiently 
prominent,  however,  to  demand  further  attention 
for  our  purpose.  Smith  himself  states  the 
general  fact  in  these  words : 

I  shall  conclude  this  very  long  chapter  with  observing 
that  every  improvement  in  the  circumstances  of  the 
society  tends  either  directly  or  indirectly  to  raise  the  real 
rent  of  land,  to  increase  the  real  wealth  of  the  landlord, 
his  power  of  purchasing  the  labour,  or  the  produce  of  the 
labour  of  the  people." 

The  difference  in  this  connection  between 
classical  economics  and  economic  liberalism  of  all 
types,  to  the  extreme  of  Marxian  socialism,  is  in 

"P.  261,  Henry  Georgeism  in  the  yolk. 


a  word  that,  both  taking  the  above  generaHzation 
to  be  true,  the  former  maintains  that  there  is  no 
way  to  prevent  the  economic  law  from  doing  its 
perfect  work ;  the  latter  maintains  that  the  artifi- 
cial arrangements  of  society  have  given  to  the 
landlord  class  a  monopoly  of  the  advantages  that 
accrue  from  the  workings  of  that  economic  law ; 
and  that  mature  social  intelligence  and  compe- 
tence must  inevitably  rearrange  the  institution 
of  property  in  land  so  that  rent  will  be  more 
equitably  distributed.  The  one  declares  that 
there  is  no  social  problem  at  this  point ;  the  other 
declares  that  the  social  situation  as  respects  rent 
is  impossible,  and  that  class  struggle  must  grow 
more  and  more  acute  until  the  negation  of 
democracy  involved  in  our  system  of  land-tenure 
is  recognized,  and  the  conflicting  claims  of 
persons  to  the  equity  which  society  arbitrates  are 
settled  so  as  to  satisfy  democratic  standards  of 

There  could  be  no  more  clear-cut  illustration 
of  the  facts  that,  in  the  first  place,  there  are  social 
problems  in  which  the  economic  factor  consti- 
tutes only  one  of  the  terms;  and,  in  the  second 
place,  that  the  economic  factor  is  not  necessarily 
the  decisive  term.  Rent  is  an  economic  phenome- 
non which  would  be  present,  like  the  power  of 
falling  water,  regardless  of  property  rights  in  the 


land  or  the  stream.  The  rights  that  people  shall 
accord  to  each  other  in  appropriating  rent  or 
water-power  must  tend  to  reflect  more  and  more 
people's  valuations  of  one  another,  not  their  con- 
sideration merely  of  rent  or  of  water-power.  In 
this  connection  the  social  problem  is:  Rent  being 
mi  algebraically  definable  portion  of  the  produce 
of  land,  how  shall  we  discover  the  formulae  of 
the  relation  of  all  the  people  to  rentf  This  ques- 
tion opens  up  the  whole  realm  of  super-economic 
moral  economy,  or  of  sociology  in  the  larger 

When  Adam  Smith's  chapters  on  rent  were 
written,  the  uneasiness  in  the  American  colonies 
was  not  taken  seriously  enough  to  bring  even 
political  democracy,  as  we  now  understand  the 
phrase,  into  the  reckonings  of  practical  politics. 
An  economic  democracy  which  could  call  in  ques- 
tion the  time-honored  caste  distinction  between 
the  landlord  and  the  landless  was  a  possibility  too 
remote  to  attract  Smith's  attention.  The  out- 
look of  classical  economics  may  accordingly  be 
represented  by  this  question :  The  general  struc- 
ture of  society  as  zve  have  it  being  final,  what  are 
the  conditions  zvhich  such  a  society  confronts  in 
its  attempts  to  increase  material  wealth?  The 
outlook  of  progressive  democracy  may  be  repre- 
sented by  the  question:     The  general  structure 


of  society  as  we  have  it  not  being  final ,  what  are 
the  conditions  which  an  evolving  society  con- 
fronts in  its  attempts  to  clear  the  way  for  increase 
of  all  human  values?  Since  the  classical  econo- 
mists started  with  the  assumption  that  things  are 
final  which  are  not  final,  it  is  not  at  all  surprising 
that,  after  they  had  satisfied  themselves  about  the 
fact  of  rent  and  the  measure  of  rent  as  actual 
economic  phenomena,  they  should  at  the  same 
time  have  felt  satisfied  that  the  formulas  of  rent 
must  apply  to  the  ownership  of  rent  as  a  social 
phenomenon.  But  the  phenomena  of  rent,  like 
the  phenomena  of  exhaustion  of  the  soil,  would 
be  invariable  in  principle,  whether  a  Conqueror 
owned  every  foot  of  the  land,  or  Plantagenet 
feudalism  prevailed,  or  nineteenth-century  liberal- 
ism developed,  or  Marxian  socialism  took  posses- 
sion. Who  shall  own  the  rent  which  accrues 
according  to  certain  laws,  regardless  of  the  insti- 
.tutions  of  property,  is  a  question  as  distinct  from 
the  fact  and  the  amount  and  the  formulas  of  rent, 
as  the  practical  problem  of  an  individual  farmer, 
whether  or  not  he  will  adopt  scientific  methods  of 
cultivation,  is  distinct  from  the  principles  of 
deterioration  which  the  agricultural  chemist 

We  repeat,  therefore,  the  primary  claim  of 
this  argument :  that  there  is  no  proper  incongruity 


between  economic  and  sociological  theory,  and 
that  sociological  inquiry  in  no  sense  challenges  the 
authority  of  economic  technology,  within  the 
field  of  its  proper  competence.  The  deadening 
influence  of  classical  economics  was  due  to  its 
failure  to  see  that  human  beings  and  their  asso- 
ciations, as  well  as  their  wealth-producing 
technique,  are  in  process  of  evolution;  and  that 
this  whole  social  process  is  a  tribunal  which  must 
continually  review  the  judgments  recorded  in 
parts  or  stages  of  the  process.  How  does  rent 
arise,  and  how  is  it  distributed  in  a  given  type  of 
society?  are  questions  of  pure  economic  technol- 
ogy, and  no  sociology  can  supersede  the 
technology  that  discovers  the  positive  answers  to 
those  questions.  Ought  the  type  of  society  which 
distributes  rent  in  a  certain  way  to  be  modified? 
is  a  question  which  is  just  as  pertinent  in  its  place 
as  the  question  whether  any  medicine  at  all,  and 
if  so  what  medicine,  should  be  prescribed  for  a 
given  patient.  The  question  of  desirable  social 
modification  can  no  more  be  answered  solely  by 
the  same  technology  which  formulates  the  prin- 
ciples of  rent,  than  the  questions  of  practical 
medicine  can  be  answered  solely  by  anatomy  or 
analytical  chemistry. 

The  classical  economics  was  industrial  posi- 
tivism,  but   social    fatalism.      Human   interests 


could  not  permanently  consent  to  be  limited  by 
that  type  of  impertinence.  Human  interests 
promise  the  prevalence  of  some  sort  of  a  theory 
of  constructivism,  not  merely  for  one  of  their 
elements,  but  for  all  combined.  Classical 
economics  virtually  proclaimed  the  finality  of  a 
social  regime  in  which  the  maximum  production 
of  wealth  should  be  the  dominant  purpose,  and 
the  maximum  development  of  persons  should  be 
only  a  secondary  consideration.  All  the  social 
philosophies  which  take  issue,  more  or  less 
directly  and  consciously,  with  this  central  conten- 
tion, virtually  deny  that  wealth  can  be  made  the 
criterion  of  life,  and  assert  that  the  ultimate 
standard  of  life  must  be  found  in  people  rather 
than  in  their  material  conditions.  This  is  really 
reasserting  Adam  Smith's  belief  that  the  funda- 
mental philosophy  of  life  is  moral,  and  that 
economic  technique  is  merely  incidental  to  the 
running  of  machinery  which  is  always  at  last 
subject  as  a  whole  to  the  disposition  of  laws 
which  lie  outside  of  its  own  operation.  We  say 
again  that  the  main  movement  on  the  theoretical 
side  of  present  social  problems  is  toward  atten- 
tion to  the  larger  incidence  of  social  relations 
than  the  immediate  successors  of  Adam  Smith 

Before  passing  from  this  subject,  it  is  necessary 


to  quote  one  more  passage,  as  a  sample  of  the 
indorsement  which  Adam  Smith's  unsuspicious 
study  of  economics  furnishes  to  present  social 
agitation.  It  is  at  the  same  time  an  index 
of  the  attitude  which  he  would  have  taken  if  he 
had  lived  until  his  presumption  of  a  statical 
condition  of  social  structure  had  been  destroyed 
by  the  actual  changes  that  have  occurred  mean- 
while.    He  says : 

The  whole  annual  produce  of  the  land  and  labour  of 
every  country,  or  what  comes  to  the  same  thing,  the  whole 
price  of  that  annual  produce,  naturally  divides  itself,  it 
has  already  been  observed,  into  three  parts;  the  rent  of 
land,  the  wages  of  labour,  and  the  profits  of  stock;  and 
constitutes  a  revenue  to  three  different  orders  of  people ; 
to  those  who  live  by  rent;  to  those  who  live  by  wages,  and 
to  those  who  live  by  profit.  These  are  the  three  great, 
original,  and  constituent  orders  of  every  civilised  society, 
from  whose  revenue  that  of  every  other  order  is  ultimately 

**  I  italicize  this  sentence,  not  because  there  can  be  profit- 
able dissent  from  it  as  a  statement  of  historic  fact,  but  because 
Smith's  present  tense  is  apparently  that  of  universal  time.  It 
declares  what,  in  his  opinion,  is,  was,  and  shall  be.  But  it  by 
no  means  follows  that  his  mind  would  have  been  impenetrable 
by  the  force  of  subsequent  events.  There  would  certainly  have 
arisen,  sooner  or  later,  a  conflict  between  the  implications  of 
his  labor  theory  of  the  origin  of  wealth,  and  his  assumption 
of  the  permanence  of  the  existing  type  of  social  structure.  I 
cannot  imagine  a  man  of  his  breadth  and  judicial  poise  persist- 
ing in  his  view  of  the  finality  of  a  given  social  structure,  if  all 
the   light    had   been    shed   upon   that   view   which    intervening 


The  interest  of  the  first  of  these  three  great  orders,  it 
appears  from  what  has  just  now  been  said,  is  strictly  and 
inseparably  connected  with  the  general  interest  of  the  so- 
ciety. Whatever  either  promotes  or  obstructs  the  one, 
necessarily  promotes  or  obstructs  the  other.  When  the 
public  deliberates  concerning  any  regulation  of  commerce 
or  police,  the  proprietors  of  land  never  can  mislead  it, 
with  a  view  to  promote  the  interest  of  their  own  particu- 
lar order;  at  least  if  they  have  any  tolerable  knowledge 
of  that  interest.  They  are,  indeed,  too  often  defective  in 
this  tolerable  knowledge.  They  are  then  only  one  of  the 
three  orders  whose  revenue  costs  them  neither  labour  nor 
care,  hut  comes  to  them,  as  it  were,  of  its  own  accord, 
and  independent  of  any  plan  or  project  of  their  own. 
That  indolence,  which  is  the  natural  effect  of  the  ease  and 
security  of  their  situation,  renders  them  too  often  not 
only  ignorant  but  incapable  of  that  application  of  mind 
which  is  necessary  in  order  to  foresee  and  understand  the 
consequences   of   any  public   regulation." 

We    must    remember    that    the    rack-renting 
absentee   landlord   had   not   yet   been   examined 

events  have  generated.  Even  the  hints  in  the  paragraph  that 
follows  contain  indications  that  he  was  partially  aware  of 
possible  anomalies  in  the  workings  of  our  institutions  of 
landed  property.  It  is  not  at  all  difficult  to  believe  that  if  he 
had  considered  all  the  anomalies  which  are  common  knowledge 
of  all  who  have  made  fairly  thorough  use  of  social  informa- 
tion today,  he  might  have  been  among  those  who  say  that 
private  property  in  land  justifies  itself  just  so  long,  and  so 
far,  as  it  proves  itself  on  the  whole  more  serviceable  to 
society  at  large  than  any  modifications  that  could  be  intro- 
duced. (Cf.  p.  129,  above.) 
«  P.  263. 


under  the  microscope.  The  country  gentleman 
whom  Adam  Smith  knew  had  probably  never 
furnished  medical  practice  a  case  of  nervous 
prostration  as  a  result  of  excessive  attention  to 
duty,  either  as  head-farmer  of  the  estate,  or  as 
magistrate,  or  as  member  of  Parliament.  He 
was  lazy  enough  at  best,  but  as  a  type  he  always 
represented  a  certain  social  service  at  worst.  He 
did  not  merely  live  a  life  of  luxury  and  display 
and  riot  in  London,  while  people  who  worked  in 
Ireland  stinted  themselves  to  support  his  extrava- 
gance by  their  tribute.  It  is  inconceivable  that 
Adam  Smith  could  have  continued  to  regard 
traditional  laws  of  landed  property  as  beyond  the 
region  of  debate,  after  the  corollaries  of  those 
laws  had  worked  themselves  out  to  the  pitch  of 
absurdity  which  the  extreme  anomalies  of 
absentee  landlordism  have  meanwhile  exhibited. 
Whatever  Americans  may  think  about  the  politi- 
cal constitution  of  Germany,  there  is  certainly 
nothing  visionary  about  her  economics.  Germany 
has  incorporated  with  her  system  of  taxation  so 
nearly  a  system  of  social  appropriation  of  the 
rent  element  in  the  returns  from  land,  that  its 
financial  system  is  virtually  a  categorical  denial 
of  the  equity  of  tolerating  a  private  income  in  the 
form  of  rent  in  the  strict  sense.  The  lengths  to 
which  Germany  has  gone  in  claiming  rent  for  the 


state,  as  a  matter  of  public  policy,  are  more  obsti- 
nate evidence  than  all  the  abstract  arguments,  that 
the  classical  assumptions  in  this  connection  were 
premature  generalizations. 

A  word  is  also  in  order  with  reference  to 
Adam  Smith's  allusion,  at  this  same  point,^^  to 
the  fact  that,  while  the  interests  of  the  order  that 
lives  by  wages  are  also  intimately  dependent  upon 
the  interests  of  society  in  general,  the  members 
of  that  order  do  not,  as  a  rule,  know^  how  to 
represent  their  own  interests. 

In  the  pubilc  deliberations,  therefore,  [the  laborer's] 
voice  is  little  heard  and  less  regarded,  except  upon 
some  particular  occasions,  when  his  clamour  is  animated, 
set  on,  and  supported  by  his  employers,  not  for  his,  but 
their  own,  particular  purposes. 

Adam  Smith  was  not  so  fatuous  as  to  assume 
that,  if  the  laborer  should  one  day  rouse  himself 
from  this  numb  acquiescence,  or  break  away  from 
his  stupid  tutelage,  he  would  be  defying  the  laws 
of  political  economy.  In  his  pedantic  scoldings 
of  modern  liberalism,  Herbert  Spencer  exploited 
precisely  that  futile  presumption.  That  which 
Smith  realized  with  regret,  the  defective  social 
activity  of  the  wage-earner  in  contending  for  his 
own  economic  interests,  seemed  to  Spencer  a 
providential  dispensation.  The  liberalism  which 
"  P.  263. 


he  bewailed  and  belabored  ^^  was  essentially  the 
very  activity  of  the  laboring  man  in  his  own 
interest,  the  absence  of  which  Smith  lamented. 
It  is  to  be  expected  that  while  the  masses  of 
wage-earners  are  getting  their  education  they 
will  repeat  many  of  the  same  errors  which  other 
social  classes  have  committed  while  they  were 
going  through  the  same  process.  Democracy  has 
gone  so  far,  however,  in  setting  free  the  physical 
and  mental  and  moral  energies  of  wage-earners 
that  they  must  necessarily  exert  an  increasing 
ratio  of  power  in  molding  social  institutions 
according  to  the  dictates  of  their  interests.  In 
future  litigation  of  class  interests,  labor  is  bound 
to  be  better  represented  than  in  the  past.  This 
means  that,  whether  we  will  or  no,  the  social 
theorems  which  have  seemed  to  cover  the  ground, 
from  the  standpoint  of  property  interests,  are 
bound  to  be  revised  so  as  to  admit  more  accurate 
calculation  of  the  previously  silent  majority. 
This  not  only  must  be,  but  should  be.  It  is  not 
a  symptom  of  social  demoralization,  but  a  sign 
of  healthy  social  progress.  Speaking  of  those 
who  live  by  profit.  Smith  observes :  ^^ 

The  proposal  of  any  new  law  or  regulation  of  com- 
merce which  comes  from  this  order,  ought  always  to  be 
listened  to  with  great  precaution,  and  ought  never  to  be 

*•  The  Man  vs.  the  State.  *»  P.  265. 


adopted  till  after  having  been  long  and  carefully  examined, 
not  only  with  the  most  scrupulous  but  with  the  most 
suspicious  attention.  It  comes  from  an  order  of  men 
whose  interest  is  never  exactly  the  same  with  that  of  the 
public,  who  have  generally  an  interest  to  deceive  and  even 
to  oppress  the  public,  and  who  accordingly  have,  upon 
many  occasions,  both  deceived  and  oppressed  it. 

The  meaning  of  the  laissez-faire  clause  in 
classical  economics  was  in  effect:  "Let  capital- 
istic interests  alone  in  deciding  for  themselves 
what  laws  shall  be  on  the  statute-books."  We 
have  had  a  period  of  excessive  liberty  of  capital 
to  exercise  the  predominant  influence  in  making 
the  laws  that  affected  its  activities.  We  are 
coming  into  an  era  in  which  non-capitalistic 
interests  are  demanding  their  share  of  hearing 
upon  the  same  class  of  laws.  There  can  be  little 
doubt  that,  whatever  he  might  have  thought  about 
specific  traits  and  details  of  this  modern  develop- 
ment, if  he  had  lived  to  see  it,  Adam  Smith 
would  have  pronounced  it  in  principle  a  tendency 
in  the  direction  of  more  just  social  balance. 



Before  continuing  the  argument,  we  should 
take  our  bearings  by  means  of  certain  plain  way- 
marks,  viz. : 

First:  The  divisions  of  our  subject-matter 
correspond  with  those  in  The  Wealth  of  Nations. 

Second :  Those  divisions  were  necessarily 

Third :  It  was  impossible  for  Adam  Smith  to 
exclude  consideration  of  capital  from  Book  I  of 
The  Wealth  of  Nations,  although  the  subject  of 
the  book  was  primarily  labor. 

Fourth:  It  was  impossible  for  Adam  Smith 
to  exclude  consideration  of  labor  from  Book  II, 
although  the  subject  of  the  book  was  primarily 

Fifth:  In  following  Smith's  analysis  of  the 
relations  of  labor  to  economic  phenomena  in  gen- 
eral, we  encounter  at  every  step  relations  of  both 
to  wider  moral  phenomena. 

Sixth :  We  shall  have  a  like  experience  in 
following  his  analysis  of  the  relations  of  capital 
to  the  economic  process. 

Seventh:  This  situation  illustrates  a  wide 


generalization,  which  is  at  the  same  time  a  socio- 
logical axiom;  viz.:  None  of  the  activities  of 
men  occur  in  isolation  from  one  another;  they 
form  an  interlocking  process;  they  are  therefore 
factors  at  last  in  the  whole  system  of  moral* 
cause  and  effect  which  presents  the  problems  of 

Eighth :  The  consideration  of  economic 
activities  from  the  sociological  point  of  view  is 
not  therefore  a  matter  of  choice,  if  we  admit  the 
obligation  to  learn  the  whole  truth  about 
economic  facts.  The  more-than-economic  in  the 
relations  is  just  as  real  an  element  in  economic 
activities  as  the  simply-economic. 

Ninth :  In  brief,  the  economic  question  is :  To 
what  extent  is  it  possible  to  discover  relations  of 
cause  and  effect  so  far  as  they  terminate  in 
wealth  ? 

Tenth :  The  corresponding  sociological  ques- 
tion is :  To  what  extent  is  it  possible  to  discover 
relations  of  cause  and  effect  so  far  as  they 
terminate  in  persons  ? 

Eleventh :  Since  wealth  can  have  no  meaning 
to  our  minds  outside  of  relations  to  persons,  it 
follows  that  all  formulas  of  wealth  have  the 
logical  rank  of  partial  products,  or  trial  divisors, 
incidental  to  ultimate  calculation  of  formulas  of 


Twelfth:  Consequently,  when  an  economic 
inquiry  is  started,  the  only  alternatives  are,  first, 
to  arrest  the  process  of  inquiry  arbitrarily  with 
the  partial  products  or  trial  divisors  reached  by 
economic  analysis ;  or,  second,  to  press  the  inquiry 
as  far  as  it  can  be  carried  into  the  whole  moral 
situation  which  sociological  methods  try  to 

Our  argument,  therefore,  continues  to  indi- 
cate the  necessary  relationships  between  Smith's 
economic  analysis  and  further  analysis  of  causes 
and  effects  throughout  the  whole  range  of  human 

The  second  book  of  The  Wealth  of  Nations, 
entitled  "Of  the  Nature,  Accumulation,  and  Em- 
ployment of  Stock,"  opens  with  a  paragraph  as 
anachronistic,  yet  essentially  as  true,  as  for 
instance  Raphael's  "School  of  Athens."  In 
order  to  indicate  the  substance  of  Smith's  views 
on  this  subject,  we  quote  the  opening  paragraph 
and  summarize  the  remainder  of  the  introduc- 

In  that  rude  state  of  society  in  which  there  is  no 
division  of  labour,  in  which  exchanges  are  seldom  made, 
and  in  which  every  man  provides  everything  for  himself, 
it  is  not  necessary  that  any  stock  should  be  accumulated 
or  stored  up  before  hand,  in  order  to  carry  on  the  busi- 
ness of  the  society.     Every  man  endeavours  to  supply  by 


his  own  industry  his  own  occasional  wants  as  they  occur. 
When  he  is  hungry,  he  goes  to  the  forest  to  hunt;  when 
his  coat  is  worn  out,  he  clothes  himself  with  the  skin  of 
the  first  animal  he  kills;  and  when  his  hut  begins  to  go  to 
ruin,  he  repairs  it  as  well  as  he  can,  with  the  trees  and 
the  turf  that  are  nearest  it. 

But  when  the  division  of  labour  has  once  been  thor- 
oughly introduced,  the  produce  of  a  man's  own  labour 
can  supply  but  a  very  small  part  of  his  occasional  wants. 
The  far  greater  part  of  them  are  supplied  by  ...  .  pur- 
chase  But  this  purchase  cannot  be  made  till   such 

time  as  the  produce  of  his  own  labour  has  not  only  been 
completed  but  sold.  A  stock  of  goods  of  different  kinds, 
therefore,  must  be  stored  up  somewhere  sufficient  to 
maintain  him.  ....  As  the  accumulation  of  stock  must, 
in  the  nature  of  the  case,  be  previous  to  the  division  of 
labour,  so  labour  can  be  more  and  more  subdivided  in 
proportion   only   as    stock   is   previously   more    and   more 

accumulated As   the   division   of   labour   advances, 

therefore,  in  order  to  give  constant  employment  to  an 
equal  number  of  workmen,  an  equal  stock  of  provisions, 
and  a  greater  stock  of  materials  and  tools  than  what 
would  have  been  necessary  in  a  ruder  state  of  things, 
must  be  accumulated  before  hand.  But  the  number  of 
workmen  in  every  branch  of  business  generally  increases 
with  the  division  of  labour  in  that  branch,  or  rather  it  is 
the  increase  of  their  number  which  enables  them  to  class 
and    subdivide    themselves    in    this    manner. 

As  the  accumulation  of  stock  is  previously  necessary 
for  carrying  on  this  great  improvement  in  the  productive 
powers  of  labour,  so  that  accumulation  naturally  leads 
to  this  improvement.  The  person  who  employs  his 
stock    in   maintaining   labour,    necessarily   wishes    to    em- 


ploy  it  in  such  a  manner  as  to  produce  as  great  a  quan- 
tity of  work  as  possible.  He  endeavours,  therefore,  both 
to  make  among  his  workmen  the  most  proper  distribution 
of  employment,  and  to  furnish  them  with  the  best  ma- 
chines which  he  can  either  invent  or  afford  to  pur- 
chase. His  abilities  in  both  these  respects  are  generally 
in  proportion  to  the  extent  of  his  stock,  or  to  the  number 
of  people  whom  it  can  employ}  The  quantity  of  industry, 
therefore,  not  only  increases  in  every  country  with  the 
increase  of  the  stock  which  employs  it,  but  in  consequence 
of  that  increase,  the  same  quantity  of  industry  produces 
a  much  greater  quantity  of  work.'^       ^ 

Book  II  consists  of  one  hundred  and  nine 
pages,  and  is  devoted  to  amplification  of  these 
propositions.  Again  we  must  point  out  that  it  is 
no  part  of  our  task  to  inquire  into  the  correct- 
ness or  adequacy  of  the  purely  economic  formulas 
or  implications.  This  work  has  been  done  by  the 
economists  themselves.  It  would  be  worse  than 
waste  to  attempt  to  do  independently  the  work  of 
criticizing  Smith,  which  the  economists  have  vir- 
tually been  carrying  on  in  co-operation  for  more 
than  a  century.  So  far  as  we  want  the  pure 
economics  of  capital,  rather  than  its  sociology, 
we  must  go  for  instruction  to  the  output  of 
economic   analysis   down   to   the   present  time.^ 

*  Italics  mine.  "  I,  pp.  275,  276. 

'Thus  the  literature  of  the  subject  is  brought  down  to  a 
late  date  by  Bohm-Bawerk  in  Capital  and  Interest  and  The 
Positive   Theory   of  Capital.     The   same  author  has  recently 


Our  concern,  however,  is  not  with  the  merits  or 
defects  of  Smith's  views  as  parts  of  a  system 
of  private  or  pubHc  accounting.  Our  inquiry 
deals  with  the  relation  of  his  views  about  "stock," 
as  he  phrased  it,  to  the  whole  social  process,  and 
especially  to  the  development  of  a  theory  of  the 
whole  social  process.  In  particular,  we  have  to 
ask  whether  Smith's  theory  of  capital  did,  or  left 
undone,  anything  that  an  adequate  theory  of  the 
whole  social  process  must  correct.  Or  did  his 
treatment  of  the  subject  furnish  occasion  for 
his  successors  to  act  as  though  his  theory  was 
more  comprehensive  and  exhaustive  than  it  was, 
or  than  he  presumed  it  to  be  ? 

At  the  outset,  we  must  take  into  consideration 
two  or  three  things  similar  to  those  which  have 
already  been  referred  to  in  connection  with  rent. 
In  the  first  place.  Smith  had  no  more  thought 
that  the  capitalists  as  such  could  ever  be  called 
upon  to  show  cause  why  they  should  exist,  than 
he  had  that  it  was  necessary  to  entertain  any  such 
vain  speculation  about  landlords.  The  reason, 
in  either  case,  was  that  to  Smith's  mind  the  class 
in  question  performed  an  indispensable  social 
function,  although  that  particular  form  of  con- 
returned  to  the  subject:  vide  Quar.  Jour,  of  Econ.,  Vol.  XXI, 
pp.  121  ;  247-82.  Cf.  Fisher,  The  Nature  of  Capital  and 
Income  (1906),  pp.  53  ff.,  et  passim. 


cept  or  of  expression  may  not  be  attributed  to 
him.  More  than  this,  Smith  seemed  to  have  no 
doubt  that  landlords  and  capitalists  were,  with 
tolerable  regularity,  functioning  according  to 
type.  The  sentence  which  I  have  italicized  above  * 
probably  does  not  directly  assert  this,  but  a  part 
of  the  ambiguity  of  the  sentence  is  apparently 
due  to  Smith's  assumption  that  status  and  fitness, 
or  function,  have  a  sort  of  foreordained  harmony 
in  the  different  industrial  orders.  By  "abilities" 
he  probably  did  not  mean  talents,  but  rather  scope 
for  the  exercise  of  talent.  That  is,  his  main  propo- 
sition was  that  the  amount  of  stock,  as  a  rule, 
determines  the  extent  to  which  division  of  labor 
and  possession  of  improved  machinery  are  pos- 
sible. This  is  a  rouglily  correct  economic  prin- 
ciple, and  we  could  raise  no  questions  of  detail 
concerning  that  phase  of  it  which  have  not 
received  ample  attention  from  the  economists. 
One  cannot  avoid  suspecting,  however,  that  a 
little  of  the  other  thought  was  also  in  Smith's 
mind,  viz.,  that  the  man  who  has  the  stock  is  the 
man  best  capable  of  organizing  the  labor  and 
selecting  or  inventing  the  machinery;  that  is,  to 
use  sociological  technicalities,  he  is  ex  officio,  so 
to  speak,  functioning  according  to  the  implica- 
tions of  his  status,  and  his  income  is  a  fair  reward 
for  his  work.  Whether  Smith  really  meant  this 
*P.  159. 


or  not,  and  whether  or  not  it  was  generally  true 
in  his  time,  we  have  meanwhile  witnessed  develop- 
ments in  which  the  exceptions  to  the  rule  are 
certainly  more  frequent  than  he  supposed,  and 
those  exceptions  must  today  be  accounted  for  in 
formulas  of  the  social  sanctions  of  capital  that 
can  successfully  run  the  gauntlet  of  criticism. 
That  is,  we  perceive  today, ,  to  an  extent  that 
Adam  Smith  did  not,  first,  that  the  division  of 
the  ownership  of  capital  among  individuals  is  a 
resultant  of  the  coworking  of  economic  and  of 
conventional  forces,  not  the  product  of  either 
alone;  second,  that,  under  the  operation  of  our 
conventionally  adapted  economic  system,  there 
are  already  enough  contrasts  between  large 
incomes  from  capital  and  small  compensating 
service  to  authorize  inquiries  whether  there  are 
faults  in  the  conventional  factors  of  our  property 
system;  whether  our  theories  of  the  rights  of 
property  are  on  the  final  basis ;  whether  the  artifi- 
cial elements  in  our  property  systems  are  sus- 
ceptible of  modifications  which  would  tend  toward 
closer  correspondence  between  service  and 

In  other  words,  the  problems  which  Smith 
took  up  were  problems  of  industrial  accounting, 
viz. :  What  are  the  mathematics  of  the  factors 
in    national    economic    systems    as    they    are    at 


present  geared  together?  He  saw  no  occasion 
for  opening  the  question  whether  the  conven- 
tional fashions  of  gearing  the  economic  factors 
were  susceptible  of  improvement.  This  latter  is 
the  social  question  in  a  nutshell,  and  it  has  been 
the  most  effective  stimulus  making  for  the 
development  of  sociological  science. 

A  change  has  occurred  in  this  connection  since 
Smith  wrote.  Because  the  conventional  factors 
in  our  economic  institutions  have  come  to  be 
social  and  sociological  problems,  economists  as 
technical  experts,  and  all  other  theorists,  have 
been  under  pressure  to  accept  one  or  the  other 
horn  of  a  dilemma  which  had  not  presented  itself 
to  Adam  Smith.  The  alternative  runs  back  to 
Smith's  account  of  "stock."  ^ 

He  says: 

When  the  stock  which  a  man  possesses  is  no  more 
than  sufficient  to  maintain  him  for  a  few  days  or  a  few 
weeks,  he  seldom  thinks  of  deriving  any  revenue  from  it. 
He  consumes  it  as  sparingly  as  he  can,  and  endeavours  by 
his  labour  to  acquire  something  which  may  supply  its 
place  before  it  be  consumed  altogether.  His  revenue  is, 
in  this  case,  derived  from  his  labour  only.  This  is  the 
state  of  the  greater  part  of  the  labouring  poor  in  all 

But  when  he  possesses  stock  sufficient  to  maintain 
him  for  months  or  years,  he  naturally  endeavours  to  derive 

=  Pp.  276,  277. 


revenue  from  the  greater  part  of  it;  reserving  only  so 
much  for  his  immediate  consumption  as  may  maintain 
him  till  this  revenue  begins  to  come  in.  His  whole  stock, 
therefore,  is  distinguished  into  two  parts.  That  part 
which,  he  expects,  is  to  afford  him  this  revenue,  is  called 
his  capital.  The  other  is  that  which  supplied  his  immedi- 
ate consumption;  and  which  consists  either,  first,  in  that 
portion  of  his  whole  stock  which  was  originally  reserved 
for  this  purpose ;  or,  secondly,  in  his  revenue,  from  what- 
ever source  derived,  as  it  gradually  comes  in;  or,  thirdly, 
in  such  things  as  had  been  purchased  by  either  of  these 
in  former  years,  and  which  are  not  yet  entirely  consumed; 
such  as  a  stock  of  clothes,  household  furniture,  and  the 

The  dilemma  concealed  in  these  propositions 
is  the  following:  When  the  principles  on  which 
revenue  from  stock  rests  come  to  divide  social 
classes,  shall  economic  theory  abide  by  this  divi- 
sion of  stock  into  that  which  is  and  that  which  is 
not  ''capital,"  and  shall  economic  theory  accept 
the  burden  of  proof  that  private  property  in 
capital  and  all  that  goes  with  it  is  just  as  unques- 
tionable as  private  property  in  the  portion  of 
stock  which  is  not  capital ;  or  shall  economic 
theory  evade  the  issue  by  refusing  to  recognize 
the  validity  of  the  distinction  which  Smith 
proposed  ? 

At  first  glance  it  may  seem  to  be  a  mere  choice 
between   words,   whether  we  call   a   workman's 

'  Italics  mine. 


clothes  and  furniture  ''capital"  or  not.  It  may 
even  appear  to  be  a  mark  of  superior  insight  to 
decide  that  a  carpenter's  hammer  and  saw  and 
plane  are  capital,  as  truly  as  the  Rothschilds' 
banking  funds ;  because  in  the  end  the  tools  help 
the  carpenter  to  get  a  revenue  just  as  truly  as  the 
gold  helps  the  banker  to  his  income.  If,  however, 
we  discover  that  marked  differences  appear  in 
the  relative  amounts  of  conventionality  or  the 
relative  amounts  of  useful  work  concerned  in 
getting  an  income  from  one  sort  of  stock  and 
another,  we  are  aware  that  very  serious  differ- 
ences may  be  involved  in  the  contrasts  between 
the  two  kinds  of  stock  in  their  relation  to  ultimate 
questions  of  income.  Since  Smith's  time,  events 
have  thrust  the  reality  of  a  difference  in  social 
effect,  as  well  as  in  social  origin,  between  the  two 
divisions  of  stock  into  prominence.  Whether 
five  dollars'  worth  of  clothes  on  a  workman's 
back,  and  five  hundred  thousand  dollars'  worth  of 
machinery  under  the  management  of  a  single 
owner,  and  five  hundred  million  dollars'  worth  of 
securities  manipulated  by  a  small  group  of  men 
who  have  a  purely  absentee  relationship  to  the 
industries  that  give  the  securities  a  value — 
whether  these  three  blocks  of  stock  are  abstractly 
of  the  same  nature  or  not,  concretely  they  are  not 
of    the    same    nature.      They    have    effects    as 


diverse  as  the  difference  between  men  who  must 
go  on  foot,  and  those  who  go  in  carriages,  and 
those  who  have  private  railroad  trains. 

The  question  which  Smith  discussed  was  vir- 
tually: What  are  the  reasons  for  the  scale  of 
remuneration  paid  to  persons  who  go  on  foot,  to 
those  who  use  carriages,  and  to  those  who  use 
private  railroad  trains,  efficiency  in  covering  dis- 
tance being  the  sole  criterion  on  which  the  scale  is 
based  ?  The  question  which  has  meanwhile  come 
to  the  front  is:  What  other  factors  does  justice 
require  in  the  standard  of  compensation,  in  view 
of  the  fact  that  a  conventional  distribution  of 
means  of  locomotion  has  introduced  artificial 
advantages  and  disadvantages  between  the  com- 
petitors? To  assert  that  all  stock  is  capital  may 
be  in  accordance  with  certain  essential  facts.  This 
truth  may,  however,  be  so  asserted  as  virtually 
either  to  beg  the  social  question  or  to  rule  it  out 
of  court,  although  it  has  come  to  be  an  inevitable 
question  since  Adam  Smith's  time. 

Whatever  might  have  been  his  position  if  he 
had  lived  till  today.  Smith's  actually  expressed 
views  on  the  differences  between  the  two  kinds 
of  stock  do  not  tend  to  confirm  the  contention  of 
those  who  virtually  hold  that  the  technology  of 
production  is  the  sole  guide  to  the  equity  of  dis- 
tribution.    They  tend  rather  to  sustain  the  con- 


tention  of  those  who  hold  that  the  organization 
of  production  at  a  given  time  may  give  an  artifi- 
cial prominence  to  some  of  the  persons  v^ho 
control  production,  and  so  may  not  be  a  fair 
index  of  the  equities  of  distribution.  The  case 
between  these  two  contentions  should  be  tried  in 
connection  with  a  later  stage  in  the  development 
of  economic  theory.  It  is  enough  at  this  point  to 
have  indicated  by  this  particular  instance  how  far 
economic  theory  at  Smith's  time  failed  to  cover 
the  ground  of  present  social  problems. 

There  is  no  proposition  in  pure  economics 
which  might  not  be  made  a  point  of  departure 
from  which  to  explore  the  whole  social  process. 
Our  present  search,  however,  is  not  for  oppor- 
tunities to  show  how  economic  facts  are  related 
to  other  social  facts,  but  to  discover,  first,  the 
extent  to  which  Adam  Smith  expressly  correlated 
economic  facts  with  other  social  activities,  and, 
second,  how  his  correlations  or  failures  to  corre- 
late left  problems  in  sociological  interpretation 
which  must  be  solved  before  social  theory  can  be 
stable.  Having  pointed  out  that  Smith  did  not 
inquire  into  the  sociology  of  private  property  in 
capital,  but  merely  analyzed  its  technology,  all 
that  remains  to  be  said  about  Book  II  is  merely 

For  instance,  we  are  reminded  that  the  ^*law 


of  diminishing  returns"  had  not  yet  been  reduced 
to  precision,  by  such  a  proposition  as  the  follow- 

The  produce  of  land,  mines,  and  fisheries,  when  their 
natural  fertility  is  equal,  is  in  proportion  to  the  extent 
and  proper  application  of  the  capitals  employed  about 
them.  When  the  capitals  are  equal,  and  equally  well  ap- 
plied, it  is  in  proportion  to  their  natural  fertility.^ 

This  is,  of  course,  a  purely  economic  generali- 
zation, and  we  note  it  simply  as  an  index  of  the 
stage  of  theory  to  which  it  belongs.  In  the  same 
connection,  however,  and  without  apparent 
thought  that  the  observation  leads  beyond  the 
boundaries  of  economic  technology.  Smith  notices 
that  the  degree  of  public  security  is  a  variant  of 
the  law  of  capitalization.^  Again,  referring  to 
luxurious  consumption  by  the  idle.  Smith  ven- 
tures a  generalization  which  is  approximately 
true  from  the  standpoint  of  capitalization,  but 
not  equally  true  as  a  sociological  proposition,  viz. : 

....  it  promotes  prodigality,  increases  expence  in  con- 
sumption without  increasing  production,  or  establishing 
any  permanent  fund  for  supporting  that  expence  and  is 
in  every  respect  [sic'\  hurtful  to  the  society.® 

It  is  hardly  necessary  to  urge  that  "in  every 
respect"  is  an  exaggeration.  A  court  ball,  or  a 
coronation   celebration,    is    rated   by   nearly   the 

'  Pp.  283,  284.  « P.  284.  •  p.  295. 


whole  population  of  the  capital,  and  perhaps  of 
the  kingdom,  as  a  promoter  of  general  prosperity. 
This  may  be  an  extremely  loose  judgment,  but  it 
contains  elements  which  are  as  valid  in  them- 
selves as  the  contradictory  judgment  just  quoted. 
There  are  circumstances  when  prodigal  expendi- 
ture by  the  rich  may  be  a  remedy  preferable  to 
the  disease.  Circulating  accumulated  wealth 
among  honest  bread-winners,  even  if  their  trades 
are  not  of  the  most  necessary  type,  may  diminish 
possible  capital  for  the  moment,  but  it  may  keep 
a  large  contingent  from  lapsing  permanently  into 

The  wage-fund  theory  appears  also  in  embryo 
in  Book  II;  e.  g.,  i,  p.  296. 

Much  more  important  than  either  of  these 
items  is  an  innocent,  but  pervertible,  paragraph 
in  the  third  chapter ;  viz. : 

The  proportion,  therefore,  between  the  productive  and 
the  unproductive  hands,  depends  very  much  in  every  coun- 
try upon  the  proportion  between  that  part  of  the  annual 
produce,  which,  as  soon  as  it  comes  either  from  the 
ground  or  from  the  hands  of  the  productive  labourers,  is 
destined  for  replacing  a  capital,  and  that  which  is  destined 
for  constituting  a  revenue,  either  as  rent,  or  as  profit. 
This  proportion  is  very  different  in  rich  from  what  it  is 
in  poor  countries." 

However  wide  the  leap  may  be  in  logic,  in 

'"I.  pp.  338,  339. 


practice  the  transition  is  easy  from  this  percep- 
tion of  fact  to  an  emphasis  on  the  fact  which  con- 
verts it  into  a  rule  of  Hfe  and  a  goal  of  life.  It  is 
highly  improbable  that  Smith  himself  would  have 
tolerated  the  pagan  conception  that  the  ranking 
moral  law  is,  Capitalize !  The  economic  theorists 
and  theories  and  practices  that  followed  him 
became  perverts  to  that  pseudo-morality  to  a 
degree  which  has  seriously  embarrassed  the  corre- 
lation of  economics  with  moral  principles.  Smith 
is  in  no  way  responsible  for  this,  except  as 
the  man  who  draws  attention  to  a  phenomenon 
may  be  the  guiltless  cause  of  unfortunate  action 
with  reference  to  the  phenomenon.  In  this  case 
the  unfortunate  action  has  been  excessive  honor 
to  the  policy  of  capitalization. 

It  is  unnecessary  to  argue  the  point,  for,  say 
from  the  beginning  of  the  twentieth  century, 
there  has  been  a  general  tendency  among  econo- 
mists the  world  over  to  admit  that  economic 
theory  has  overemphasized  production  and  neg- 
lected the  theory  of  consumption.  In  fact,  our 
social  philosophy  and  our  working  moral  stand- 
ards are  seriously  distorted  by  the  impression 
that  there  is  superior  merit  in  the  capitalization  of 
wealth,  irrespective  of  the  demand  for  consump- 
tion in  the  society  that  has  produced  the  wealth. 
Capitalistic  theories  tend  to  interpret  consump- 


tion  merely  as  a  means  to  production.  This  is 
the  necessary  and  proper  perspective  in  a  pure 
theory  of  economic  technique.  At  the  same  time 
it  is  ocular  proof  that  a  theory  of  economic 
technique  is  merely  a  relative  clause  in  a  philoso- 
phy of  human  affairs.  In  a  rational  system  of 
which  the  center  is  persons,  not  things,  production 
can  have  no  complete  meaning  except  as  a  pur- 
veyor to  consumption.  Production  is  the  lower 
virtue,  and  consumption  is  the  higher.  To  capi- 
talize wealth  in  order  to  produce  more  wealth, 
when  consumption  of  the  same  wealth  would 
produce  better  people,  is  prostitution.  From  the 
standpoint  of  sociology  the  history  of  nineteenth- 
century  economics,  both  theoretical  and  applied, 
has  yet  to  be  interpreted  with  just  attention  to 
this  distinction.  From  Adam  Smith  to  Mill, 
the  emphasis  of  the  economists  lent  itself  more 
and  more  to  deepening  the  impression  that  capi- 
talization is  the  first  duty  of  the  man  who  can  get 
hold  of  anything  to  capitalize;  and  that,  like  the 
formula  "corban"  with  the  older  Pharisees,  the 
plea  of  "the  interests  of  capital"  absolves  the 
devotees  of  production  from  responsibility  to  the 
claims  of  humanity. 

Note  should  be  taken  also  that,  in  Smith's 
analysis,  there  are  premonitions  of  the  explana- 
tion of  returns  to  capital  which  we  now  associate 


chiefly  with  the  name  of  Senior,  and  which  has 
come  to  be  known  as  the  "reward-for-akstinence 
theory."  Inasmuch  as  the  relations  concerned 
are  still  in  debate,  it  is  not  remarkable  that  Smith 
hardly  thought  of  them  as  debatable.  One  is 
provoked  to  query  whether  Smith  could  have 
reconciled  this  part  of  his  views  with  the  doctrine 
of  labor  as  the  source  of  wealth  already  discussed. 
Possibly  he  would  have  answered  that  the  two 
dicta  applied  to  different  steps  in  the  economic 
process,  and  that  both  might  be  true  in  their 
proper  place.  Indeed,  it  would  be  unfair  to  Smith 
to  assume  that  he  had  offered  an  alternative 
explanation  of  the  same  thing.  When  the  analy- 
sis of  returns  from  capital  is  pursued  to  the  last 
detail,  the  relation  of  labor  to  these  returns  is 
more  evident  than  Smith  made  it  in  this  connec- 
tion; but  the  reason  is  that  he  is  not  now  talking 
primarily  of  wealth,  but  of  capital.  He  is  also 
merely  putting  into  words  very  commonplace 
facts.  He  is  not  probing  far  below  the  surface 
for  explanations.  He  expresses  the  facts  in 
terms   of    ''parsimony"  : 

Capitals   are   increased  by   parsimony,   and   diminished 

by  prodigality  and  misconduct Parsimony,  and  not 

industry,  is  the  immediate  cause  of  the  increase  of  capital. 
Industry,  indeed,  provides  the  subject  which  parsimony 
accumulates.      But    whatever    industry    might    acquire,    if 


parsimony  did  not  save  and  store  up,  the  capital  would 
never  be  the  greater That  portion  of  his  rev- 
enue which  a  rich  man  annually  spends,  is  in  most  cases 
consumed  by  idle  guests,  and  menial  servants,  who  leave 
nothing  behind  them  in  return  for  their  consumption." 

In  so  far  as  these  propositions  are  to  be  taken 
as  generalizations  of  the  process  of  increasing 
capital,  the  term  "parsimony"  has  to  be  under- 
stood with  a  sHding  scale  of  meaning — from  the 
most  pinching  literalness  at  the  one  extreme,  to 
exuberant  metaphor  at  the  other.  When  the 
multimillionaire  converts  the  surplus  dividends, 
which  he  could  not  consume  if  he  would,  into 
capital  to  produce  more  dividends,  his  proced- 
ure would  hardly  be  termed  "parsimony"  outside 
the  Pickwick  Club.  The  extravagance  of  this 
metaphor  in  the  case  of  ordinary  commercial 
capital  has  been  amply  exposed  by  multitudes  of 
critics  of  Senior.  It  is  worth  referring  to  here, 
however,  as  one  of  the  incipient  forms  of  a  pre- 
judice which  presently  became  a  considerable 
obstruction  to  dispassionate  analysis  of  the  phe- 
nomena of  capitalistic  revenue.  We  shall  find 
the  best  conditions  for  an  accounting  between 
economics  and  sociology  on  this  subject  when  we 
come  to  later  phases  of  the  social  problem. 

The  remainder  of  the  chapter   from  which 

"I,  pp.  342,  343. 


the  last  quotations  are  taken  is  accelerated  motion 
toward  apotheosis  of  capitalization.  It  is  not 
fallacious.  It  is  in  substance  profoundly  wise. 
It  is,  however,  merely  the  theory  of  one  section 
of  prudence.  It  simply  does  not  raise  the  ques- 
tion of  adjustment  between  the  interests  of  capi- 
tal and  the  interests  of  men.  It  encourages  the 
inference  that  whatever  makes  for  the  interests 
of  capital  ipso  facto  makes  for  the  interests  of 
people.  The  mischievous  force  of  this  inference 
is  far  from  spent  in  the  beliefs  and  practices  of 
society,  and  it  is  a  principal  task  of  sociology  to 
bring  the  truth  into  larger  perspective. 

In  the  fourth  chapter  of  Book  II  Smith's 
frank  dissection  of  economic  reality  has  an  efifect 
in  the  opposite  direction  from  that  just  noted. 
Since  the  justice  of  interest,  dividends,  or  profits 
has  been  systematically  challenged  by  the  social- 
ists, there  has  been  a  decided  tendency  among  the 
economists  either  directly  to  affirm  or  covertly  to 
assume  some  form  of  labor  title  as  the  justifica- 
tion of  all  revenue  from  capital.  This  plea  not 
only  finds  no  support  in  The  Wealth  of  Nations, 
but  its  author  bluntly  blurts  out  his  perception 
that  revenue  in  the  form  of  interest  is  not  a 
compensation  for  the  owner's  work,  but  a 
compensation  for  his  idleness.     He  says: 


The  stock  which  is  lent  at  interest  is  always  considered 

as  a  capital  by  the  lender The  borrower  may  use 

it  either  as  a  capital,  or  as  a  stock  received  for  immediate 

consumption The  stock  which  is  lent  at  interest  is, 

no  doubt,  occasionally  employed  in  both  these  ways,  but 
in  the  former  much  more  frequently  than  in  the  latter. 
....  The  only  people  to  whom  stock  is  commonly  lent, 
without  their  being  expected  to  make  any  very  profitable 
use  of  it,  are  country  gentlemen  who  borrow  upon  mort- 

A  capital  lent  at  interest  may,  in  this  manner,  be  con- 
sidered as  an  assignment  from  the  lender  to  the  borrower 
of  a  considerable  portion  of  the  annual  produce;  upon 
condition  that  the  borrower  in  return  shall,  during  the 
continuance  of  the  loan,  annually  assign  to  the  lender 
a  smaller  portion,  called  the  interest;  and  at  the  end  of  it, 
a  portion  equally  considerable  with  that  which  had  origi- 
nally been  assigned  to   him,   called  the   repayment 

In  proportion  as  that  share  of  the  annual  produce  which 
....  is  destined  for  replacing  a  capital,  increases  in  any 
country,  what  is  called  the  monied  interest  naturally 
increases  with  it.  The  increase  of  those  particular  capitals 
from  which  the  owners  wish  to  derive  a  revenue,  without 
being  at  the  trouble  of  employing  them  themselves^  natur- 
ally accompanies  the  general  increase  of  capitals;  or,  in 
other  words,  as  the  stock  increases,  the  quantity  of 
stock  to  be  lent  at  interest  grows  gradually  greater  and 

The  expression  italicized  is  repeated  on  page 
364.  The  thought  had  evidently  not  occurred  to 
Adam   Smith  that  the   lender  of   stock  had  a 

"  Italics  mine.  "  Pp.  356-59. 


claim,  in  that  capacity,  to  be  treated  as  a  worker. 
It  had  never  entered  his  head  to  doubt  that  the 
lender  was  entitled  to  his  interest,  but  he  rested 
the  right  on  the  naive  position  stated  on  pages 
362,  363,  viz. :  "As  something  can  everywhere  be 
made  by  the  use  of  money,  something  ought  every- 
where to  be  paid  for  the  use  of  it."  If  financial 
transactions  had  grown  no  more  complicated 
than  they  were  when  that  sentence  was  written, 
there  would  be  a  minimum  of  impulse  to  chal- 
lenge such  plausible  fairness.  But  today  opera- 
tions, which  are  as  different  from  furnishing  stock 
to  a  user  as  a  stone  is  from  bread,  shelter  them- 
selves under  the  sanction  of  the  general  claim  of 
capital  to  interest.  The  nature  of  that  claim  calls 
for  analysis.  The  problem  of  making  the  analysis 
is  a  cardinal  task  of  sociology.  The  economic 
factors  in  the  problem  are  deceptive  until  they 
are  reduced  to  the  denominator  of  personal 
values  and  personal  service.  When  we  apply 
this  test,  we  shall  prove  that  our  ideas  about  the 
basis  of  present  legal  claims  to  income  from  capi- 
tal must  sooner  or  later  undergo  drastic  recon- 

In  Chapter  V  of  Book  II  Smith  discusses 
"The  Different  Employment  of  Capitals."  The 
general  thesis  is : 

Though  all  capitals  are  destined   for  the  maintenance 


of  productive  labour  only,  yet  the  quantity  of  that  labour, 
which  equal  capitals  are  capable  of  putting  into  motion, 
varies  extremely  according  to  the  diversity  of  their  em- 
ployment, as  does  likewise  the  value  which  that  employ- 
ment adds  to  the  annual  produce  of  the  land  and  labour 
of  the  country." 

Then  Smith  distinguishes  four  ways  in  which 
capital  may  be  employed ;  viz. :  first,  "in  procur- 
ing the  rude  produce  annually  required  for  the 
use  and  consumption  of  the  society;"  second, 
"in  manufacturing  and  preparing  that  rude  prod- 
uce for  immediate  use  and  consumption;"  third, 
"in  transporting  either  the  rude  or  manufactured 
produce  from  the  places  where  they  abound  to 
those  where  they  are  wanted;"  fourth,  "in 
dividing  particular  portions  of  either  into  such 
small  parcels  as  suit  the  occasional  demands  of 
those  who  want  them."  "It  is  difficult  to  con- 
ceive," he  adds,  "that  a  capital  should  be  employed 
in  any  way  which  may  not  be  classed  under  some 
one  or  other  of  these  four." 

It  is  obvious  that  this  fourfold  classification 
of  capital  is  primarily  economico-technological, 
and  only  remotely  social.  The  discussion  which 
follows  of  the  relative  value  to  the  commonwealth 
of  the  different  ways  of  employing  capital  has 
significance  for  sociology  simply  in  so  far  as  it 

"  P.  365. 


tends  to  determine  a  formula  for  the  economic 
factor  in  situations  in  which  alternative  uses  of 
capital  raise  questions  of  social  utility  in  the 
large.  The  discussion  does  not  go  far  enough 
to  approach  the  questions  of  adaptation  which 
present  themselves  in  twentieth-century  com- 
munities, except  as  it  points  out  certain  generic 
distinctions.  This  by  no  means  ignores  the 
value  even  of  this  preliminary  analysis.  It  con- 
tains homely  wisdom  which  is  not  likely  to  be 
outgrown  by  the  most  sophisticated  social  science. 
It  is,  nevertheless,  the  wisdom  of  the  market,  not 
of  the  forum.  The  sterile  generality  of  the  dis- 
cussion as  a  whole  may  be  indicated  by  the 
following  passage,  which,  at  the  very  moment 
when  the  words  were  printed,  events  were  rapidly 
turning  into  one  of  the  most  foolish  prophecies 
on  record: 

It  has  been  the  principal  cause  of  the  rapid  progress 
of  our  American  colonies  towards  wealth  and  greatness, 
that  almost  their  whole  capitals  have  hitherto  been  em- 
ployed in  agriculture.  They  have  no  manufactures,  those 
household  and  coarser  manufactures  excepted,  which 
necessarily  accompany  the  progress  of  agriculture,  and 
which  are  the  work  of  the  women  and  children  in  every 
private  family.  The  greater  part  both  of  the  exporta- 
tion and  coasting  trade  of  America,  is  carried  on  by  the 
capitals  of  merchants  who  reside  in  Great  Britain.  Even 
the  stores  and  warehouses  from  which  goods  are  retailed 


in  some  provinces,  particularly  in  Virginia  and  Maryland, 
belong  many  of  them  to  merchants  who  reside  in  the 
mother  country,  and  afford  one  of  the  few  instances  of 
the  retail  trade  of  a  society  being  carried  on  by  the  capi- 
tals of  those  who  are  not  resident  members  of  it.  Were 
the  Americans,  either  by  combination  or  by  any  other  sort 
of  violence,  to  stop  the  importation  of  European  manu- 
factures, and,  by  thus  giving  a  monopoly  to  such  of  th^ir 
own  countrymen  as  could  manufacture  the  like  goods, 
divert  any  considerable  part  of  their  capital  into  this  em- 
ployment, they  would  retard  instead  of  accelerating  the 
further  increase  in  the  value  of  their  annual  produce,  and 
would  obstruct  instead  of  promoting  the  progress  of 
their  country  towards  real  wealth  and  greatness.  This 
would  be  still  more  the  case,  were  they  to  attempt,  in 
the  same  manner,  to  monopolize  to  themselves  their  whole 
exportation  trade.^® 

It  is  not  finical  nor  hypercritical  to  abstract 
from  this  chapter  the  casual  sentence :  "But  the 
great  object  of  the  political  economy  of  every 
country,  is  to  increase  the  riches  and  power  of 
that  country."  ^^  We  need  not  comment  upon  it 
at  length.  It  is  merely  a  confession  of  the  strictly 
technological  character  of  the  discipline  so  desig- 
nated. It  is  incidentally  a  proof  that  the  modern 
economists  who  want  to  give  their  science 
a  different  scope  have  broken  with  the 
tradition  which  The  Wealth  of  Nations 
established.     Some  of  them  are  tending  toward 

"  Pp.  272,  373-  "  P.  378. 


readjustment  with  the  fundamental  moral  philos- 
ophy of  which  The  Wealth  of  Nations  was  a 
specialization;  others  are  tending  toward  spe- 
cialization of  a  different  sort,  as,  for  instance, 
on  the  one  hand, the  theory  of  taxation,  or  finance, 
or  currency,  or  banking,  or  transportation;  or, 
on  the  other  hand,  the  converting  of  economics 
into  a  psychology  of  economic  valuations.  This 
readjustment  of  the  perspective  of  economic 
science  cannot  be  complete  until  it  brings 
economic  activities  into  focus  as  merely  one  of 
the  interdependent  factors  of  the  evolving  pur- 
poses of  persons. 


Book  III  of  The  Wealth  of  Nations  treats  of 
"The  Different  Progress  of  Opulence  in  Dif- 
ferent Nations,"  More  evidently  than  in  any 
earlier  section  of  The  Wealth  of  Nations,  the 
second  of  the  two  elements  of  the  author's  method 
now  appears,  the  opposite  tendencies  of  which 
were  never  fairly  brought  to  light  till  the  time  of 
Cliffe  Leslie.  These  are  the  deductive  and  the 
historical  methods.  Neither  of  these  two 
methods  was  developed  to  its  extreme  results. 
Neither  was  put  in  the  form  of  a  distinct  thesis 
in  methodology.  There  could  consequently  have 
been  no  formal  doctrine  of  the  relations  between 
them.  Both  were  mobilized  for  Smith's  pur- 
poses, and  each  was  worked  out  by  Smith's  suc- 
cessors as  a  methodology  which  implied 
precedence  over  the  other.  Perhaps  it  is  easy  to 
overestimate  the  credit  due  to  Smith  for  the 
balance  which  his  own  thinking  maintained 
between  the  two  methods.  Perhaps  the  very  fact 
that  each  was  semi-defined,  semi-conscious,  in  h^s 
own  mind,  detracts  from  his  individual  merit 


for  the  resulting  sanity  of  his  thinking.  The 
fact  remains,  however,  that,  while  Smith's  analy- 
sis compares  with  the  work  of  later  economists, 
according  to  either  program,  merely  as  a  begin- 
ning compares  with  a  relatively  finished  product, 
yet  it  also  appears  in  the  same  comparison  like  a 
great  architectural  design  in  contrast  with  elabo- 
rately finished  parts  of  a  structure  not  yet 
assembled  in  a  completed  building. 

In  other  words,  the  deductive  and  the  histori- 
cal methods  were  not  alternatives  in  Smith's  sys- 
tem. They  were  partners.  The  historical  or 
inductive  method  was  appealed  to  so  frankly  that 
no  one  who  goes  back  to  Smith  as  a  path-maker 
in  economics  can  consistently  disparage  the  his- 
torical factor  of  the  method  which  he  used.  The 
deductive  method  was  employed  with  equal 
frankness,  but  in  the  general  plan  of  his  argu- 
ment the  interdependence  of  the  inductive  and 
the  deductive  steps  in  the  formation  of  con- 
clusion was  preserved  in  a  way  that  forms 
a  highly  creditable  approach  to  satisfaction  of 
those  canons  of  proof  which  John  Stuart  Mill 
formulated  almost  a  century  later.  That  is, 
Smith  realized  the  necessity  of  deriving  principles 
to  be  used  deductively  from  inductive  generaliza- 
tions of  previous  experience.  In  this  general 
form,  his   science  was  therefore  more  catholic 


and  more  convincing  than  that  of  his  successors 
who  obviously  overworked  the  one  or  the  other 
element  of  proof,  and  in  either  case  left  the 
proof  limping  from  the  weakness  of  the  neg- 
lected support.  In  subsequent  economic  theory 
the  illustrations  have  been  many  and  conspicuous, 
on  the  one  hand  of  a-priori  use  of  generalizations 
not  supported  by  a  sufficient  induction,  and  on 
the  other  hand  of  historical  data-collecting  which 
became  virtually  an  end  unto  itself,  because  not 
carried  to  a  completeness  that  afforded  credible 

Speaking  in  the  rough,  there  is  only  one 
source  from  which  to  derive  principles  of  human 
conduct.  That  source  is  historical  induction.  Of 
course,  this  proposition  extends  the  term  "his- 
torical" beyond  its  ordinary  meaning.  Every- 
thing is  past,  and  thus  "historical,"  as  soon  as  it 
has  occurred,  and  thus  made  itself  material  for 
reflection.  The  present  has  become  the  past  while 
the  observer  adjusts  his  attention  to  it.  In  this 
sense  inductions  from  experience  are  the  only 
positive  source  for  generalizations  of  valid  prin- 
ciples. Book  III  of  The  Wealth  of  Nations  is, 
in  the  first  instance,  an  attempt  to  show  why 
wealth  has  increased  in  different  ratios  in  differ- 
ent   nations.      This    particular    inquiry,    strictly 

^  Cf.  Bagehot,  above,  pp.  67  fF. 


limited,  is  merely  a  question  of  the  world's  finan- 
cial bookkeeping.  Strict  limitation  of  the  inquiry 
to  this  phase,  however,  would  be  arbitrary,  as  the 
world's  bookkeeping,  and  the  activities  which  it 
records,  are  essential  to  the  world's  higher  activi- 
ties. Next  above  the  significance  of  the  passage, 
as  a  study  of  the  growth  of  wealth,  is  its  signifi- 
cance as  a  theorem  in  methodology.  It  throws 
its  weight  on  the  side  of  the  claim  that  the 
world's  experience,  as  a  whole,  is  the  source  of 
the  world's  science;  not  merely  that  part  of  the 
world's  experience  which  consists  chiefly  of  intro- 
spection of  the  mind's  grinding  upon  itself,  with 
neglect  of  the  objective  experience  which  fur- 
nishes the  proper  grist  for  the  mind. 

It  is  worth  notice,  too,  that  in  this  book  Smith 
again  incidentally  recognizes  the  institutional  or 
volitional  factor,  as  a  variant  in  the  operation 
of  what  he  regarded  as  the  "natural"  economic 
factors.     Thus: 

Had  human  institutions,  therefore,  nfever  disturbed  the 
natural  force  of  things,  the  progressive  wealth  and  in- 
crease of  the  towns  would,  in  every  political  society,  be 
consequential,  and  in  proportion  to  the  improvement  and 
cultivation   of   the   territory   or   country.^ 

The  whole  of  Book  III,  indeed,  from  our 
present  point  of  view,  is  notable  for  these  two 

'  P.  386. 


primary  reasons :  first,  it  appeals  to  the  historical 
method  of  establishing  economic  principles; 
second,  it  appeals  to  social  occurrences  to  explam 
variations  in  the  action  of  economic  forces.  If 
these  two  principles  had  been  allowed  their  share 
of  influence  since  Adam  Smith,  there  would 
have  been  little  room  for  divergent  schools  of 
economic  theory,  and  scarcely  an  appreciable 
demand  for  the  differentiation  of  sociologists.  It 
is  not  very  extravagant  hyperbole  to  say  that  the 
whole  methodology  of  social  science  is  an  elabora- 
tion of  the  implications  of  these  two  principles. 

Even  in  this  strictly  economic  investigation, 
however,  reflections  occur  which  show  that 
Smith  was  closely  related  by  affinity  with  the 
modern  theoretical  and  practical  movements 
toward  placing  society  on  a  frankly  telic  basis. 
For  example,  in  discussing  the  reasons  why  entail 
justified  itself  in  one  state  of  society  and  not  in 
another,  he  says : 

When  great  landed  estates  were  a  sort  of  principalities, 
entails  might  not  be  unreasonable.  Like  what  are  called 
the  fundamental  laws  of  some  monarchies,  they  might 
frequently  hinder  the  security  of  thousands  from  being 
endangered  by  the  caprice  or  extravagance  of  one  man. 
But  in  the  present  state  of  Europe,  when  small  as  well  as 
great  estates  derive  their  security  from  the  laws  of  their 
country,  nothing  can  be  more  completely  absurd.  They 
are    founded   upon   the   most   absurd   of   all   suppositions, 


the  supposition  that  every  successive  generation  of  men 
have  not  an  equal  right  to  the  earth,  and  to  all  that  it 
possesses;  but  that  the  property  of  the  present  generation 
should  be  restrained  and  regulated  according  to  the 
fancy  of  those  who  died  perhaps  five  hundred  years  ago.' 

This  chapter  is  also  a  brief  of  the  whole 
economic  and  social  argument  against  slavery  as 
a  method  of  production.  It  is  also  in  effect  a 
demonstration  of  the  fallacy  of  laissez  faire  as  a 
general  principle  or  universal  precept.  It  shows 
that  legislation  may  either  kill  or  cure  according 
to  circumstances,  and  according  to  the  fitness  of 
the  legislation.  For  example,  speaking  of  the 
impossibility  of  securing  the  highest  state  of  cul- 
tivation without  the  security  of  the  farmer's 
tenure,  Smith  says: 

In  England,  therefore,  the  security  of  the  tenant  is 
equal  to  that  of  the  proprietor Those  laws  and  cus- 
toms so  favourable  to  the  yeomanry  have  perhaps  contrib- 
uted more  to  the  present  grandeur  of  England  than  all 
their  boasted  regulations  of  commerce  taken  together.* 

Perhaps  the  most  important  element  in  this 
portion  of  The  Wealth  of  Nations,  from  our 
point  of  view,  is  the  cumulative  argument  that 
laws  and  institutions  make  or  mar  economic  as  . 
well  as  more  general  prosperity.  If  the  ocular 
proof  had  not  meanwhile  been  furnished,  it  would 
have  been  incredible  that  social  theory  could  fall 

'  P.  390.  *  P.  397. 


from  the  high  level  of  Adam  Smith's  outlook  to 
the  pitiable  shallowness  of  the  laissez-faire 
theory.  Because  certain  types  of  interest  did  not 
want  the  government  to  perform  certain  types  of 
actions,  formulas  of  temporary  policy  were 
gravely  promoted  to  the  rank  of  inflexible  prin- 
ciples, to  the  effect  that  goverment  violates  the 
fundamental  order  of  society  if  it  modifies 
economic  action  at  all.  The  humor  of  the  situa- 
tion was  in  the  fact  that  the  very  people  who 
most  zealously  fed  the  altar-fires  of  this  super- 
stition had  first  taken  elaborate  precautions  to 
build  up  around  their  own  interests  the  most 
rigid  system  of  legal  safeguards  that  had  ever 
surrounded  vested  right  since  the  strictest  period 
of  the  Roman  law. 



In  the  ''Introduction"  to  Book  IV,  entitled 
"Of  Systems  of  Political  Economy,"  Smith 
divulges  more  explicitly  than  before  his  concep- 
tion of  political  economy  as  a  distinct  science. 
According  to  his  description  it  is,  as  we  have 
claimed,  a  technology  of  wealth-production,  first 
for  the  people  and  second  for  the  state.  Political 
economy,  according  to  this  description,  is  "a. 
branch  of  the  science  of  a  statesman  or  legisla- 
tor." As  we  have  seen,  all  the  sciences  tributary 
to  statesmanship  and  all  other  parts  of  the  theory 
of  conduct  were  to  men  of  Adam  Smith's  type 
details  subordinate  to  an  inclusive  moral 

Book  IV  is  a  critique  of  systems  of  political 
economy,  or  rather  of  two  principal  systems; 
viz.,  first,  "the  commercial  or  mercantile  sys- 
tem," second,  "the  agricultural  systems,  or  those 
systems  which  represent  the  produce  of  land  as 

^  In  another  book  I  shall  call  attentiori  to  the  instructive 
antithesis  between  Smith's  conception  of  the  relations  of  politi- 
cal economy  and  that  of  Von  Mohl,  Encyklop'ddie  der  Staats- 
wissenschaften,  2d  ed.,  pp.  57,  58. 



either  the  sole  or  the  principal  source  of  the 
revenue  and  wealth  of  every  country." 

The  thread  of  Smith's  argument  in  this  book 
is  not  altogether  clear  at  first  sight.  The  reader 
might  suppose  that  the  book  would  include  a  pre- 
cise account  of  the  system  of  political  economy 
which  the  author  supposed  to  be  valid.  In  fact, 
the  discussion  is  virtually  a  continued  exposition 
of  his  own  labor  theory  of  political  economy,  by 
the  indirect  method  of  exposing  the  errors  of  the 
mercantilist  and  the  agricultural  theories.  When 
he  reaches  the  second  of  these  systems,^  he  assigns 
as  his  reasons  for  treating  it  briefly  that  it  has 
never  done  any  great  harm,  and  is  never  likely  to. 
That  is,  he  was  somewhat  of  the  opinion  of  the 
boy  who  defined  salt  as  "the  stuff  that  makes 
'taters  taste  so  bad  when  you  don't  put  any  on." 
By  implication  Smith  justifies  his  long  discussion 
of  the  mercantilist  theory  on  the  ground  that  it 
has  done  harm,  and  is  likely  to  do  more.  In  effect, 
however,  these  criticisms  are  merely  to  fill  out  his 
own  labor  theory  of  economics  which  was 
sketched  in  the  first  two  books. 

The  plan  of  our  study  does  not  permit  atten- 
tion to  the  details  of  Smith's  exposition.  We 
are  now  interested  simply  in  those  indications 
which  betray  Smith's  opinions  about  the  relations 
*n,  179. 


of   economic   technique   to   the   inclusive   moral 

It  is  in  point,  however,  to  reinforce  the 
observation  made  in  the  last  paragraph  of  Section 
V.  While  leading  up  to  an  argument  in  support 
of  a  certain  economic  system.  Smith  artlessly 
describes  notorious  types  of  manipulation  of 
opinion,  and  of  government,  to  procure  legisla- 
tion favorable  to  special  interests.  That  is,  he 
shows  how  the  commercial  interests  retained 
theorists  to  formulate  philosophies  reflecting 
their  views,  created  a  tradition  which  made  these 
special  interests  the  center  or  foundation  of 
abstract  and  applied  economic  systems,  and 
induced  Parliament  to  legislate  these  special  inter- 
ests into  the  position  of  vested  and  fortified 
interests.  This  done,  the  same  interests  turned 
about  and  demanded,  both  directly  and  through 
their  theoretical  attorneys,  that  legislation  should 
henceforth  be  declared  a  vice!  That  is,  having 
secured  their  own  interests  by  law,  it  should 
henceforth  be  forbidden  to  other  interests  to  get 
the  same  advantage  from  law!  As  we  have 
said,  this  delicious  naivete  was  not  the  rule  of  a 
nursery  game.  It  was  the  serious  contention  of 
Britain's  strongest  men  for  the  larger  part  of  a 
century,  and  it  is  still  making  a  strong  bid  for  the 
rank  of   economic  orthodoxy  both   in   England 


and  the  United  States!  Referring  to  the  mer- 
cantilist theories,  Smith  says : 

Such  as  they  were,  however,  those  arguments  con- 
vinced the  people  to  whom  they  were  addressed.  They 
were  addressed  by  merchants  to  parliaments,  and  to  the 
councils  of  princes,  to  nobles,  and  to  country  gentlemen; 
by  those  who  were  supposed  to  understand  trade,  to  those 
who  were  conscious  to  themselves  that  they  knew  nothing 
about  the  matter.  That  foreign  trade  enriched  the  coun- 
try, experience  demonstrated  to  the  nobles  and  country 
gentlemen  as  well  as  to  the  merchants ;  but  how,  or  in  what 
manner,  none  of  them  well  knew.  The  merchants  knew 
perfectly  well  in  what  manner  in  enriched  themselves.  It 
was  their  business  to  know  it.  But  to  know  in  what 
manner  it  enriched  the  country,  was  no  part  of 
their  business.  The  subject  never  came  into  their 
consideration,  but  when  they  had  occasion  to  apply 
to  their  country  for  some  change  in  the  laws  relat- 
ing to  foreign  trade.  It  then  became  necessary  to 
say  something  about  the  beneficial  effects  of  foreign  trade, 
and  the  manner  in  which  those  effects  were  obstructed 
by  the  laws  as  they  then  stood.  To  the  judges  who  were 
to  decide  the  business,  it  appeared  a  most  satisfactory  ac- 
count of  the  matter,  when  they  were  told  that  foreign 
trade  brought  money  into  the  country,  but  that  the  laws 
in  question  hindered  it  from  bringing  so  much  as  it 
otherwise  would  do.  Those  arguments  heretofore  pro- 
duced  the   wished-for    effect The    title    of    Munn's 

book,  England's  Treasure  in  Foreign  Trade,  became  a 
fundamental  maxim  in  the  political  economy  not  of 
England  only,  but  of  all  other  commercial  countries.  The 
inland  or  home  trade,  the  most  important  of  all,  the  trade 


in  which  an  equal  capital  afifords  the  greatest  revenue, 
and  creates  the  greatest  employment  to  the  people  of  the 
country,  was  considered  as  subsidiary  only  to  foreign  trade. 
It  neither  brought  money  into  the  country,  it  was  said, 
nor  carried  any  out  of  it.  The  country  therefore  could 
never  become  either  richer  or  poorer  by  means  of  it, 
except  so  far  as  its  prosperity  or  aecay  might  indirectly 
influence  the  state  of  foreign  trade. 

The  thesis  which  Smith  opposes  to  the  mer- 
cantihst  assumption  is  compressed  into  the 
following  proposition : 

It  would  be  too  ridiculous  to  go  about  seriously  to 
prove  that  wealth  does  not  consist  in  money,  or  in  gold 
and  silver;  but  in  what  money  purchases,  and  is  valuable 
only  for  purchasing.  Money,  no  doubt,  makes  always  a 
part  of  the  national  capital;  but  it  has  already  been  shown 
that  it  generally  makes  but  a  small  part,  and  always  the 
most  unprofitable  part  of  it.^ 

It  would  be  an  excursus  from  the  main  path 
of  our  argument  to  cite  such  a  proposition,  if  it 
were  not  more  pregnant  today  than  it  was  when 
it  was  written.  So  far  as  we  can  judge  of  the 
mental  content  of  the  most  intelligent  men  of 
that  period,  it  appears  that  the  proposition  must 
have  been  much  more  narrowly  technological  to 
them  than  it  is  to  us.  Since  psychological  and 
sociological  analyses  of  value,  and  consequently 
of  wealth,  have  reorganized  the  associations  which 

'  P.  437. 


the  proposition  suggests,  we  are  bound  to  find  it 
conclusive  for  reasons  much  more  comprehen- 
sive than  even  Smith  himself  could  have  clearly 
apprehended.'  It  would  be  an  interesting  diver- 
sion to  fortify  this  judgment  by  analyzing  the 
course  of  argument  through  which  Smith  sup- 
ports the  theorem.  It  is  largely  a  most  ingenious 
discussion  of  the  relative  economic  utility  of 
money,  or  the  precious  metals,  and  other  com- 
modities.^ While  the  analysis  is  remarkably 
skilful,  our  attention  is  necessarily  arrested  by 
the  contrast  between  its  emphasis  and  that  which 
would  appear  in  a  modern  exposition  of  the  same 
subject.  That  is,  we  should  now  support  the 
same  thesis  less  upon  strictly  economic  grounds, 
and  more  upon  psychological  and  sociological 

As  a  connecting  link  between  different  stages 
of  economic  theory  and  practice.  Smith's  conclu- 
sion about  the  social  consequences  of  the  mer- 
cantilist theory  must  be  noticed,  viz. : 

The  two  principles  being  established,  however,  that 
wealth  consisted  in  gold  and  silver,  and  that  those 
metals  could  be  brought  into  a  country  which  had  no 
mines,  only  by  the  balance  of  trade,  or  by  exporting  to  a 
greater  value  than  it  imported;  it  necessarily  became  the 
great  object  of  political  economy  to  diminish  as  much  as 
possible  the  importation  of  foreign  goods  for  home  con- 

*Pp.  437-50. 


sumption,  and  to  increase  as  much  as  possible  the  expor- 
tation of  the  produce  of  domestic  industry.  Its  two  great 
engines  for  enriching  the  country,  therefore,  were  re- 
straints upon  importation  and  encouragements  to  exporta- 

We  are  not  committed  to  inquiry  into  the 
history  of  economic  theory  far  enough  to  find 
out  how  much  of  Smith's  repudiation  of  niercan- 
tiHsm  was  the  result  of  his  own  initiative  and 
how  much  the  effect  of  the  teachings  of  the  , 
Physiocrats.^  The  main  point  for  our  purpose  is 
that  Smith  dehberately  stated  it  as  his  aim  to 
treat  the  case  against  mercantihsm  strictly  in  its 
bearings  upon  the  increase  of  national  wealth. 
That  is,  he  prescribed  for  himself  a  distinctly  tech- 
nological inquiry,  and  excluded  as  far  as  possible 
all  ulterior  considerations  of  the  relations . 
between  wealth  and  the  other  factors  of  welfare. 
Having  enumerated  the  two  types  of  restraints 
upon  importation,  and  "the  four  types  of  device 
adopted  to  promote  exportation,  under  mercan- 
tilism,'^ Smith  announces  his  plan  of  attack  as 
follows : 

The    two   sorts    of    restraints    upon    importation    above 
mentioned,   together   with    these    four   encouragements    to  . 

'  P.  450. 

®  Boisguillebert,  1707;  the  French-Irishman  Cantillon,  1755; 
Quesnay,  1758;  Gournay,  1702-59;  Turgot,  1727-81  ;  etc. 
'P.  451. 


exportation,  constitute  the  six  principal  means  by  which 
the  commercial  system  proposes  to  increase  the  quantity 
of  gold  and  silver  in  any  country  by  turning  the  balance 
of  trade  in  its  favour,  I  shall  consider  each  of  them  in  a 
particular  chapter,  and  without  taking  much  further 
notice  of  their  supposed  tendency  to  bring  money  into  the 
country,  I  shall  examine  chiefly  what  are  likely  to  be  the 
effects  of  each  of  them  upon  the  annual  produce  of  its 
industry.  According  as  they  tend  either  to  increase  or 
diminish  the  value  of  this  annual  produce,  they  must  evi- 
dently tend  either  to  increase  or  diminish  the  real  wealth 
and  revenue  of   the  country.^ 

We  must  again  define  the  standpoint  from 
which  we  are  analyzing  The  Wealth  of  Nations. 
In  brief,  we  are  pointing  out,  first,  that  Adam 
Smith  was  fundamentally  a  moral  philosopher, 
and  that  every  division  of  his  thinking  was  sub- 
ordinated, in  his  own  mind,  to  an  inclusive  moral 
philosophy;  second,  that,  in  selecting  the  prob- 
lems of  wealth  for  minute  investigation,  Smith 
abstracted  a  body  of  phenomena  from  the  whole 
body  of  moral  phenomena,  and  treated  them  as 
though  they  could  be  considered  as  suf^cient  unto 
themselves;  third,  that  in  so  doing  Smith  set  the 
pace  for  a  technology  of  wealth,  as  an  end  unto 
itself;  fourth,  that  such  a  technology  is  enor- 
mously important,  but  that,  for  this  very  reason, 
it  tends  to  overbalance  the  other  elements  of  a 

'  P.  452. 


comprehensive  moral  philosophy ;  for  instance,  to 
take  a  concrete  illustration,  it  begs  the  question 
whether  it  is  conceivable  that  Englishmen  might, 
on  the  whole,  be  better  off  under  the  less  produc- 
tive of  two  economic  systems.  It  contains  no  hint 
of  the  possibility  that  in  a  given  situation  improve- 
ments in  the  system  of  distribution  may  do  more 
than  increase  of  production  toward  promoting 
welfare.  In  other  words,  this  technology  of 
wealth  confidently  assumes  that  the  total  wel- 
fare of  a  people  is  in  direct  proportion  to  the 
aggregate  of  wealth,  and  it  therefore  makes 
wealth  the  center  of  calculation,  while  the  com- 
plete or  even  wider  welfare  of  human  beings 
comes  into  view  only  as  a  subsidiary  con- 
sideration. There  is  no  sufficient  reason  to  infer 
that,  in  Smith's  case,  this  temporary  obscuration 
of  the  moral  by  the  economic  meant  any  confu- 
sion about  the  ultimate  subordination  of  the 
economic  to  the  moral.  It  was  merely  a  provi- 
sional arrest  of  attention  upon  the  economic 
phases  of  moral  relations.  Our  further 
contention  is,  however,  fifth,  that  there  was  a 
strong  undertow  in  economic  theory  pulling 
toward  complete  isolation  of  economics  from 
morals,  and  toward  a  valuation  of  wealth  above 
the  other  elements  of  human  welfare.  That  is, 
the  foundation  of  moral  philosophy  tended  to 


disappear  from  beneath  social  theory,  and  it 
tended  to  become  a  bare  economic  technology. 
If  the  extreme  decline  into  unmorality  is  to  be 
connected  with  the  name  of  a  single  economic 
writer,  J.  R.  McCullock  (1779-1864)  may  safely 
be  nominated  for  the  distinction.  Our  main 
argument  is,  sixth,  that  this  abstraction  of  the 
economic  phase  of  activity  and  theory  from  the 
totality  of  human  activities,  and  from  compre- 
hensive moral  philosophy,  is  a  temporary  provin- 
cialism. Human  activities  are  not  thus  isolated; 
and  theories  of  human  activities,  although  they 
may  call  themselves  sciences,  are  vicious  theories 
to  the  extent  that  they  depend  upon  presump- 
tions of  the  isolation  and  independence  of 
classes  of  activities.  In  other  words,  what- 
ever be  the  content  of  economic  theory,  it 
must  find  for  itself  a  valid  correlation  with  the 
whole  scope  of  positive  moral  philosophy,  before 
it  can  recover  the  relative  dignity  which  belonged 
to  it  in  Adam  Smith's  scheme  of  morality. 

For  the  reasons  restated  in  the  foregoing 
paragraph,  our  study  does  not  call  for  detailed 
discussion  of  the  following  six  chapters.^  They 
are  primarily  technological  with  reference  to  the  I 
frankly  proximate  end — the  production  of  ] 
wealth.  References  to  more  ultimate  ends  are 
inevitable  tributes  to  the  larger  constitution  of 

» Book  IV,  Chaps.  II-VII. 


things,  which  cannot  be  successfully  ignored,  and 
which  Smith,  even  as  a  technologist,  apparently 
never  desired  to  ignore.  Such  references  are,  at 
best,  however,  casual,  not  essential  to  the  techno- 
logical argument.  The  one  cumulative  argu- 
ment within  the  field  of  our  present  interest, 
which  these  chapters  unintentionally  enforce,  is 
that  there  is  the  most  intimate  and  incessant 
reaction  between  all  economic  activities  and  all 
customs  and  laws  of  the  societies  maintaining 
the  activities.  The  relations  of  cause  and  effect 
between  these  different  classes  of  activities  are  so 
evident  that  it  would  be  a  priori  impossible  to 
imagine  a  theory  of  them  which  would  pre-sup- 
pose  their  virtual  independence.  Nearly  the 
whole  weight  of  the  classical  economics,  how- 
ever, was  cast  into  the  balance  on  the  side  of  the 
illusion  that  economic  activities  constitute  a 
species  of  perpetual  motion  sufficient  unto  itself, 
and  that  this  sanctuary  would  be  profaned  if  it 
were  in  any  way  disturbed  by  the  other  social 
interests.  The  classical  political  economy  well- 
nigh  succeeded  in  suppressing  the  larger  question  : 
What  ratio  does  the  wealth  factor  in  the  human 
equation  bear  to  all  the  other  factors  of  welfare 
in  typical  situations?  So  far  as  its  influence 
prevailed,  the  classical  economics  left  the  impres- 
sion,  not  only  that  all  other  human   problems 


must  defer  to  the  wealth  problem,  but  that  the 
solution  of  the  wealth  problem  is  ipso  facto  the 
solution  of  all  other  human  problems.  In  other 
words,  the  classical  political  economy  tended 
toward  abandonment  of  the  attempt  to  interpret 
life  as  a  moral  problem,  and  substituted  an 
attempt  to  interpret  life  in  terms  of  the  tech- 
nique of  economic  production. 

Nor  is  this  all.  The  economic  production  which 
the  classical  economics  had  in  mind  was  the  pro- 
duction, not  of  the  actual  human  beings  whose 
essential  moral  relations  were  fairly  apprehended. 
It  was  the  production  of  an  aggregate  of  individ- 
uals whose  moral  relations  were  considered,  for 
the  purposes  of  economic  theory,  to  be  in  a  con- 
dition of  foreordained  and  permanent  status.  The 
most  preposterous  feature  of  this  naive  presump- 
tion was  that  it  serenely  accepted,  as  a  statical 
condition,  the  unsocial  activities  of  predatory 
economic  self-interest,  artfully  intrenching  itself 
behind  social  contrivances  which  the  lawmakers 
were  induced  to  create,  and  then  piously  anathe- 
matizing the  endeavors  of  any  competing  interest 
that  attempted  to  get  like  reinforcement  for  itself ! 
This  presumption  alone  damned  the  classical 
economy.  Economic  activities  are  merely  frac- 
tions of  the  total  self-expression  of  men  whose 
moral   relations  are  in   a  perpetual  flux  of   re- 


adjustment.  A  fundamental  sociological  problem 
is  that  of  determining  the  formulas  according  to 
which  these  economic  and  moral  activities  are 
varying  functions  of  one  another. 

It  cannot  be  too  often  repeated  that  these 
judgments  are  not  passed  on  the  philosophy  of 
Adam  Smith,  but  on  the  degenerate  scion  of  his 
theory  which  we  know  as  the  classical  economics. 
Our  thesis  is  that  the  sociologists  are  contending 
for  a  return  to  the  moral  basis  upon  which  Adam 
Smith's  economics  rested.  Not  that  the  specific 
content  of  his  moral  philosophy  could  be  vindi- 
cated now,  but  that  his  philosophy  was  primarily 
moral,  instead  of  primarily  technological.  He 
saw,  as  economists  half  a  century  after  him  had 
become  almost  incapable  of  seeing,  that  economic 
processes  are,  and  must  be,  at  last,  incidents  of 
larger  moral  processes.  This  might  easily  be 
illustrated  in  such  a  case,  for  example,  as  the 
ultimate  reasons  which  he  adduces  for  peaceful 
accommodation  between  the  mother-country  and 
the  American  colonies.^ ^ 

The  concluding  paragraph  of  Chapter  VIH 
is  in  Smith's  most  frank  and  sententious  style  : 

It  cannot  be  very  difficult  to  determine  who  have  been 
the  contrivers  of  this  whole  mercantile  system;  not  the 
consumers,  we  may  believe,  whose  interest  has  been  en- 

^"  Vol.  II,  pp.  134-38,  et  passim. 


tirely  neglected;  but  the  producers,  whose  interest  has 
been  so  carefully  attended  to;  and  among  this  latter  class 
our  merchants  and  manufacturers  have  been  by  far  the 
principal  architects.  In  the  mercantile  regulations,  which 
have  been  taken  nqtice  of  in  this  chapter,  the  interest  of  our 
manufacturers  has  been  most  peculiarly  attended  to,  and 
the  interest,  not  so  much  of  the  consumers  as  that  of  some 
other  sets  of  producers,  has  been  sacrificed  to  it." 

Turning  to  the  second  type  of  political  econ- 
omy, Adam  Smith  says : 

The  agricultural  systems  of  political  economy  will 
not  require  so  long  an  explanation  as  that  which  I  have 
thought  it  necessary  to  bestow  upon  the  mercantile  or 
commercial  system. 

That  system  which  represents  the  produce  of  land  as 
the  sole  source  of  the  revenue  and  wealth  of  every 
country  has,  so  far  as  I  know,  never  been  adopted  by  any 
nation,  and  it  at  present  exists  only  in  a  few  men  of  great 
learning  and  ingenuity  in  France.  It  would  not,  surely, 
be  worth  while  to  examine  at  great  length  the  errors  of  a 
system  which  never  has  done,  and  probably  never  will 
do  any  harm  in  any  part  of  the  world." 

Smith  finds  the  capital  error  of  this  system 
in  ''its  representing  the  class  of  artificers,  manu- 
facturers and  merchants,  as  altogether  barren 
and  unproductive."  ^^ 

Yet  Smith  continues: 

This  system,  however,  with  all  its  imperfections,  is 
perhaps  the  nearest  approximation  to  the  truth  that  has 

"II,  178.  "II,  Chap.  IX,  p.  179-  "II,   192. 


yet  been  published  upon  the  subject  of  political  economy, 
and  is  upon  that  account  well  worth  the  consideration  of 
every  man  who  wishes  to  examine  with  attention  the 
principles  of  that  very  important  science."  Though  in 
representing  the  labour  which  is  employed  upon  land  as 
the  only  productive  labour,  the  notions  which  it  inculcates 
are  perhaps  too  narrow  and  confined;  yet  in  representing 
the  wealth  of  nations  as  consisting,  not  in  the  incon- 
sumable riches  of  money,  but  in  the  consumable  goods 
annually  reproduced  by  the  labour  of  society;  and  in 
representing  perfect  liberty  as  the  only  effectual  expedient 
for  rendering  the  annual  reproduction  the  greatest  pos- 
sible, its  doctrine  seems  to  be  in  every  respect  as  just  as  it 
is  generous  and  liberal/'' 

This  passage  incidentally  justifies  me  in  call- 
ing Smith's  theory  "labor  economics,"  in  dis- 
tinction from  "mercantile"  or  "agricultural" 
economics.  ^^  Although  we  have  been  taught  to 
call  Smith's  theory  the  "system  of  natural  lib- 
erty," his  own  statement  shows  that  "natural 
liberty"  is  the  voluntary  means  of  increasing 
wealth  rather  than  the  ultimate  principle  upon 
which  the  production  of  wealth  depends.  This 
perception  does  not  affect  one  way  or  the  other 
the  main  contention  that  Smith's  economics  was 
virtually  a  chapter  in  his  moral  philosophy.  He 
does   not   directly   argue   that   "natural   liberty" 

"  Of   course,   this   proposition   must   be   understood   as   ex- 
plained by  pp.  189,  190,  above. 

"  II,  196.  '"  I ;  cf.  p.  205,  below. 


is  the  best  means  to  the  production  of  wealth 
because  it  is  right.  It  is  the  best  means  because 
it  is  most  productive.  This  would  not  preclude 
the  argument  from  purely  moral  grounds  that 
natural  liberty  is  an  economic  imperative  because 
it  is  right.  Smith's  conviction  of  its  righteous- 
ness, however,  appears  to  have  sprung  very  largely 
from  his  belief  that  it  was  expedient.  Although 
he  would  have  regarded  the  utilitarianism  of  Ben- 
tham  as  bizarre,  yet  he  was  practically  much  less 
removed  from  the  logic  of  Benthamism  than  he 
would  have  been  willing  to  admit  if  Bentham 
had  been  more  nearly  his  contemporary.^^ 

Another  summary  of  Smith's  whole  economic 
philosophy,  with  just  a  hint  of  its  bearing  upon 
general  social  philosophy,  occurs  at  the  close  of 
Book  IV,  and  deserves  a  place  in  this  digest : 

It  is  thus  that  every  system  which  endeavours,  either,  by 
extraordinary  encouragements,  to  draw  towards  a  particular 
species  of  industry  a  greater  share  of  the  capital  of  the  so-^ 

"  One  might  make  a  good  deal  in  support  of  this  judg- 
ment out  of  a  passage  in  Smith's  Lectures  on  Justice,  etc. 
(Cannan),  pp.  ii,  13.  Having  remarked  that  in  a  monarchy 
the  principle  of  authority  prevails,  but  in  a  democracy  that 
of  utility,  Smith  continues :  "Men  in  general  follow  these 
principles  according  to  their  natural  dispositions.  In  a  man  of 
a  bold,  daring  and  bustling  turn  the  principle  of  utility  is  pre- 
dominant, and  a  peaceable,  easy  turn  of  mind  usually  is  pleased 
with  a  tame  submission  to  superiority."  The  objections  to  the 
suggested  use  of  the  passage  are  obvious  enough,  but  on  the 


ciety  than  what  would  naturally  goto  it ;  or,  by  extraordinary 
restraints,  to  force  from  a  particular  species  of  industry 
some  share  of  the  capital  which  would  otherwise  be  em- 
ployed in  it;  is  in  reality  subversive  of  the  great  pur- 
pose which  it  means  to  promote.  It  retards,  instead  of 
accelerating,  the  progress  of  the  society  towards  real 
wealth  and  greatness;  and  diminishes,  instead  of  increas- 
ing, the  real  value  of  the  annual  produce  of  its  land  and 

All  systems,  either  of  preference  or  of  restraint,  there- 
fore, being  thus  completely  taken  away,  the  obvious  and 
simple  system  of  natural  liberty  establishes  itself  of  its 
own  accord.^*  Every  man,  as  long  as  he  does  not  violate 
the  laws  of  justice,  is  left  perfectly  free  to  pursue  his 
own  interest  his  own  way,  and  to  bring  both  his  industry 
and  capital  into  competition  with  those  of  any  other 
man,  or  order  of  men.  The  sovereign  is  completely  dis- 
charged from  a  duty,  in  the  attempting  to  perform  which 
he  must  always  be  exposed  to  innumerable  delusions,  and 
for  the  proper  performance  of  which  no  human  wisdom 
or  knowledge  could  ever  be  sufficient;  the  duty  of  super- 
intending the  industry  of  private  people,  and  of  directing  it 

whole  it  is  worth  noting  in  this  connection.  Cf.  loc.  cit.  for 
Smith's  statement  of  the  grounds  of  utility  which  "ought  to 
make  marriage  perpetual ;"  also  pp.  94  flf.  on  master  and  ser- 
vant. Dugald  Stewart  expressed  a  judgment  quite  in  the 
line  of  my  conclusion.     (Account  of  the  Life,  etc.  [Bohn  ed.], 

p.    XXX.) 

In  Part  I,  Sec.  3,  of  the  same  lectures,  entitled  by  the 
editor  "How  Republican  Governments  Were  Introduced,"  the 
explanation  is  utilitarianism  of  a  most  frankly  opportunistic 

"  Cf.  p.  203,  above. 


towards  the  employments  most  suitable  to  the  interest  of 
the  society.  According  to  the  system  of  natural  liberty, 
the  sovereign  has  only  three  duties  to  attend  to;  three 
duties  of  great  importance,  indeed,  but  plain  and  intelli- 
gible to  common  understandings;  first,  the  duty  of  protect- 
ing the  society  from  the  violence  and  invasion  of  other 
independent  societies;  secondly,  the  duty  of  protecting,  as 
far  as  possible,  every  member  of  the  society  from  the  in- 
justice or  oppression  of  every  other  member  of  it,  or  the 
duty  of  establishing  an  exact  administration  of  justice; 
and  thirdly,  the  duty  of  erecting  and  maintaining  certain 
public  works  and  certain  public  institutions,  which  it 
can  never  be  for  the  interest  of  any  individual,  or  any 
small  number  of  individuals,  to  erect  and  maintain;  be- 
cause the  profit  could  never  repay  the  expence  to  any 
individual  or  small  number  of  individuals,  though  it  may 
frequently  do  much  more  than  repay  it  to  a  great  so- 

At  this  point  the  sociologist  may  be  pardoned 
for  musing: 

Of  ....  the  fruit 

Of  that  forbidden  tree,  whose  mortal  taste 

Brought  death  into  the  world,  and  all  our  woe. 

The  a-priori  political  philosophy  which,  from 
Plato  down,  imposed  upon  social  theory  one  of 
the  stupidest  dei  ex  machina  in  the  whole  Wal- 
halla  of  superstition,  that  inflexible  monster  of 
pedantic  imagination,  "sovereignty,"  betrays 
itself  in  this  passage,  and  furnishes  one  of  the 

"  II,  pp.  206,  207. 


important  clues  to  the  fatuity  of  the  classical 
economy.  The  vitality  of  Smith's  fundamental 
morals  could  not  save  his  theory  until  it  could  be 
delivered  from  the  bondage  of  this  arbitrary 
dogma.  This  is  merely  a  more  occult  way  of 
saying  that  inadequate  analysis  of  the  general 
social  process  set  very  strait  bounds  for  exten- 
sion of  the  positive  method  which  Smith  honestly 
applied  so  far  as  his  doctrinal  limitations  would 
permit.  A  mechanical  political  philosophy  was 
accomplice  before  the  fact  in  a  large  part  of  the 
misconduct  of  classical  economics.  From  one 
point  of  view  modern  socialism  is  the  natural 
rebound,  not  so  much  from  eighteenth-century 
economic  theory,  as  from  its  stilted  political  pre- 
conceptions. I  merely  call  attention  in  passing 
to  this  factor  in  the  evolution  of  modern  social 
theory.  I  hope  to  return  to  the  subject  in  another 

The  metaphysical  doctrine  of  "sovereignty"  is 
as  distinct  from  the  literal  fact  of  sovereigns,  of 
various  types,  as  the  Ptolemaic  theory  of  the  uni- 
verse was  from  the  facts  of  astronomy.  Govern- 
ments actually  exert  a  quasi-absolute  power  over 
subjects  within  territory  which  legal  fictions  may 
treat  as  beyond  the  prerogative  of  other  govern- 
ments. For  convenience  we  may  call  govern- 
ments,  or  nations,   if  we  please,   "sovereigns." 


We  may  take  our  own  chances  of  escaping  the 
confusions  involved  in  the  traditional  problems 
of  the  actual  location  and  sanctions  of  sover- 
eignty; whether  in  the  government  itself,  in  "the 
state,"  in  the  people  collectively,  in  the  people 
individually,  or  in  some  other  conceivable  or 
inconceivable  sanctuary.  In  any  case,  the  politi- 
cally organized  groups  to  which  a  more  or  less 
fictitious  sovereignty  has  always  been  ascribed 
carry  on  collective  activities.  These  activities  are 
costly.  The  expenses  have  to  be  met.  There  is 
nothing  fictitious  about  the  fiscal  needs  of  states. 
At  the  same  time,  the  questions  of  national 
revenue  may  be  treated  as  purely  technological 
problems,  which  have  no  more  immediate  refer- 
ence to  the  larger  problems  of  human  welfare 
than  the  technology  of  production  in  the  strict 



The  fifth  book  of  The  Wealth  of  Nations 
treats  of  "The  Revenue  of  the  Sovereign  or 
Commonwealth."  It  is  not  worth  our  while  to 
inquire  how  advisedly  Smith  used  these  terms; 
i.  e.,  whether  he  was  entirely  free  from  use  of 
the  term  "sovereign"  in  a  shifting  sense.  If  it 
were,  it  would  be  necessary  to  show,  from  such 
passages  as  the  opening  paragraphs  of  Book  V, 
Chapter  I,  Part  IV,i  that  Smith  meant  by  "the 
sovereign"  sometimes  the  commonwealth,  some- 
times the  monarch,  and  perhaps  sometimes  an 
undefined  third  something,  apparently  corre- 
sponding with  one  of  the  German  concepts  of 
"the  state"  as  distinguished  from  the  other  alter- 
natives. Our  question  is,  however:  To  what 
extent  did  Smith  recognize  separate  spheres  of 
activity  for  various  social  technologies,  and  to 
what  extent  did  he  provide  for  the  subordina- 
tion of  fiscal  technique  to  a  larger  range  of  moral 
requirements?      Was    his    treatment    of    public 

*n,  p-  339. 



revenue  merely  political  technology,  or  was  it, 
beyond  that,  an  inquiry  in  ethics?^ 

Apparently  Smith  conceives  of  the  fiscal  prob- 
lem, not  merely  as  technical,  but  as  broadly 
moral.  This  is  certainly  true  if  the  last  para- 
graph in  the  fourth  book  is  to  be  taken  at  face 
value.    It  reads : 

The  proper  performance  of  those  several  duties  of  the 
sovereign  necessarily  requires  a  certain  expence;  and  this 
expence  again  necessarily  requires  a  certain  revenue  to 
support  it.  In  the  following  book  therefore,  I  shall  en- 
deavour to  explain:  first,  what  are  the  necessary  expences 
of  the  sovereign  or  commonwealth;  and  which  of  those 
expences  ought  [sic]  to  be  defrayed  by  the  general  con- 
tribution of  the  whole  society;  and  which  of  them,  by 
that  of  some  part  only,  or  of  some  particular  members  of 
the  society;  secondly,  what  are  the  different  methods  in 
which  the  whole  society  may  be  made  to  contribute  to- 
wards defraying  the  expences  incumbent  on  the  whole  so- 
ciety and  what  are  the  principal  advantages  and 
inconveniences  of  each  of  those  methods;  and  thirdly, 
what  are  the  reasons  and  causes  which  have  induced 
almost  all  modern  governments  to  mortgage  some  part  of 
this  revenue,  or  to  contract  debts,  and  what  have  been 
the  effects  of  those  debts  upon  the  real  wealth,  the  an- 
nual  produce   of   the  land,   and  labour   of   society.     The 

^  In  either  case,  it  is  to  be  noted  that  Book  V  exhibits  a 
radically  different  conception  of  the  relation  of  political  econ- 
omy to  political  science  from  that  of  Von  Mohl.  Cf.  above, 
p.  189. 


following  book,  therefore,  will  naturally  be  divided  into 
three  chapters.^ 

Taken  literally,  this  paragraph  is  a  requisition 
upon  the  total  resources  of  moral  philosophy. 
The  word  ''ought"  occupies  a  place  in  the  first 
division  of  the  subject  which  might  have  delighted 
the  soul  of  Kant.  The  terms  "advantages"  and 
"inconveniences"  might  be  adopted  as  blanket 
phrases  for  all  the  criteria  which  could  be  insisted 
on  by  the  most  exacting  telic  philosophy.  The 
third  inquiry  points  directly  toward  radical  prob- 
lems in  social  psychology,  but  the  last  clause  seems 
to  put  the  ban  on  these  larger  interpretations. 
It  seems  to  indicate  that,  after  all,  in  Smith's 
reckoning,  all  the  oughtness  and  the  convenience 
were  merely  utility  with  reference  to  wealth 
alone,  and  that  no  account  was  to  be  taken  of 
utilities  in  which  wealth  was  simply  a  mediate 
term.  Some  close  scrutiny  of  Book  V  is  neces- 
sary, therefore,  in  order  to  make  out  how  far 
either  of  these  appearances  is  to  be  credited. 

On  any  theory  of  political  society  whatsoever, 
so  long  as  men  remain  in  a  state  which  makes 
resort  to  war  tolerable,  the  costs  of  war  must  be 
defrayed.  Civil  society  must,  therefore,  find 
ways  of  paying  the  bills  of  war.  This  is  the 
first  item  on  the  debit  side  of  Smith's  discussion 

'  II,  p.  207. 


of  national  revenue.  Neither  the  morality  of 
war,  nor  the  economics  of  war  in  the  wider 
sense,  is  here  brought  into  account.  The  points 
are,  first,  that  wars  occur ;  second,  that  they  must 
be  paid  for  somehow.^  With  not  a  little  of  the 
spirit  of  Herbert  Spencer,^  Smith  shows  that, 
with  the  development  of  institutions,  in  general, 
and  of  the  art  of  war  in  particular,  the  expense 
of  war  is  shifted  largely  from  the  individual 
fighters,  and  becomes  a  charge  upon  the  fiscus. 
While  the  abundance  of  the  material  betrays 
Smith  into  diffuseness  upon  what  might  be  called, 
in  a  very  loose  sense,  the  sociology  of  war,  all 
that  it  amounts  to  is  amplification  of  the  proposi- 
tion that  every  civilized  nation  must  have  a 
military  budget. 

Part  II  of  the  same  chapter  expands  the 
proposition  that  the  administration  of  justice  is 
costly,  and  that  the  cost  must  be  covered  by 
national  revenues.  Again,  the  discussion  takes  a 
wide  range,  in  securing  historical  evidence  for 
the  platitude.  Incidentally  the  discussion  asserts, 
in  the  most  unrestricted  fashion,  that  property  is 
privilege,  and  that  it  is  the  creature  of  social  voli- 
tion.     This   perception,   of   course,    makes   any 

*  II,  pp.  208  ff. 

^Principles   of   Sociology,    Part   V,    Chap.    XII,    "Military 


selected  property  system,  according  to  Smith'3 
general  philosophy,  liable  to  answer  for  its  justi- 
fication before  the  ultimate  tribunal  of  social 
appeal.  This  corollary  is  merely  latent  in  Smith's 
argument.  The  main  point  is  that  property 
questions  demand  an  administration  of  justice, 
and  this  is  also  a  charge  on  the  national  budget.*' 
Other  variants  of  disturbed  relations,  more  or 
less  involved  with  property,  and  all  reinforcing 
the  demand  for  a  legal  system,  are  the  different 
kinds  of  subordination  that  grow  up  in  society; 
e.  g.,  from  variations  of  personal  qualifications, 
from  differences  in  age,  from  differences  in 
wealth,  and  from  differences  in  the  prestige  of 

Here  again  Smith  is  on  the  borderland  of 
analytical  sociology;  but,  while  his  observations 
are  pertinent,  they  merely  furnish  padding  for 
the 'essential  proposition.  In  the  whole  of  Book  V 
Smith  indulges  in  wider  detours  from  the 
direct  path  of  his  argument  than  in  the  earlier 
parts  of  the  work.  To  change  the  figure,  he 
does  not  hew  close  to  the  economic  line,  but  cuts 
into  the  Imaterial  of  political  science.  For 
example,  at  the  close  of  Chapter  I,  Part  II :  ^ 

When  the  judicial  is  united  to  the  executive  power, 
it  is  scarce  possible  that  justice  should  not  frequently  be 

'II,  pp.  22T,  228.  ^11,  pp.  240,  241. 


sacrificed  to,  what  is  vaguely  called,  politics.  The  person 
entrusted  with  the  great  interests  of  the  State  may,  even 
without  any  corrupt  views,  sometimes  imagine  it  neces- 
sary to  sacrifice  to  those  interests  the  rights  of  a  private 
man.  But  upon  the  impartial  administration  of  justice 
depends  the  liberty  of  every  individual,  the  sense 
which  he  has  of  his  own  security.  In  order  to 
make  every  individual  feel  himself  perfectly  secure 
in  the  possession  of  every  right  which  belongs  to 
him,  it  is  not  only  necessary  that  the  judicial  should  be 
separated  from  the  executive  power,  but  that  it  should  be 
rendered  as  much  as  possible  independent  of  that  power. 
The  judge  should  not  be  liable  to  be  removed  from  his 
office  according  to  the  caprice  of  that  power.  The  regular 
payment  of  his  salary  should  not  depend  upon  the  good- 
will, or  even  upon  the  economy  of  that  power. 

Part  III  of  Chapter  I  treats  in  a  very  similar 
way  the  items  of  expense  for  "pubHc  works  and 
pubHc  institutions."  The  main  thesis  is  continued 
in  the  opening  paragraph  : 

The  third  and  last  duty  of  the  sovereign  or  common- 
wealth is  that  of  erecting  and  maintaining  those  public 
institutions  and  those  public  works,  which,  though  they 
may  be  in  the  highest  degree  advantageous  to  a  great 
society,  are,  however,  of  such  a  nature  that  the  profit 
could  never  repay  the  expence  to  any  individual  or  small 
number  of  individuals,  and  which  it  therefore  cannot  be 
expected  that  any  individual  or  small  number  of  individu- 
als should  erect  or  maintain.  The  performance  of  this 
duty  requires  two  very  different  degrees  of  expence  in  the 
different  periods  of  society.^ 

MI,  p.  241. 


At  first  reading,  if  one  knew  nothing  of  the 
previous  argument,  one  might  infer  that  the 
author  of  this  paragraph  had  in  mind  a  range  of 
pubHc  works  which  would  tend  rather  toward 
the  sociaHstic  than  toward  the  laissez-faire 
extreme.  If  we  reflect,  however,  that  the  term 
"advantageous"  in  Smith's  vocabulary  meant  in 
this  connection  "favorable  to  the  production  of 
wealth,"  the  apparent  implications  of  the  passage 
are  considerably  modified.  The  really  material 
thing  is  the  claim  that  some  public  works  must  be 
maintained  by  the  state.  There  is  little  doubt, 
however,  that  the  assumptions  behind  this  claim 
in  Smith's  mind  would  lean  logically  much 
further  toward  liberalism  than  the  doctrines  of 
the  l^ter  classical  economy.  In  the  second  para- 
graph, for  instance,^  Smith  groups  the  "works" 
which  he  has  in  mind  chiefly  in  two  classes;  viz., 
first,  "those  for  facilitating  the  commerce  of 
society,"  and,  second,  "those  for  promoting  the 
instruction  of  the  people."  Here  is  a  distinct 
proposition  which  the  Spencerian  type  of  indi- 
vidualism abhorred,  and  which  cannot  be  regarded 
as  primarily  in  the  classical  sense. 

Smith's  treatment  of  the  first  group  falls 
mainly  within  the  scope  of  pure  economic  theory, 
if  we  include  in  economic  theory  the  equities  of 

•II,  p.  241. 


exchange,  considered  solely  on  the  basis  of  market 
value  of  services  rendered.  The  reasoning,  how- 
ever, is  neither  as  clear  nor  as  convincing  as  in 
the  earlier  parts  of  the  treatise.  As  in  the  case  of 
the  two  previously  named  items  of  public  expendi- 
ture, the  problem  of  apportioning  the  amount 
between  individuals  and  the  public  is  by  no  means 
conclusively  solved.  The  argument  drops  rather 
from  the  level  of  scientific  analysis  to  that  of  the 
essay  setting  in  order  accepted  commonplaces. 
The  reasons  assigned  for  division  of  expense  are 
rather  more  definite  under  this  third  head  of 
"public  works,"  than  under  the  two  previous 
titles.  At  the  same  time,  more  is  left  to  be 
desired  in  this  connection  than  in  almost  any 
other  case  which  Smith  undertakes  to  analyze. 
I  enumerate  the  reasons  which  he  expressly 
alleges,  and  return  to  the  subject  after  reaching 
the  close  of  the  chapter.  The  reasons  named  are 
these :  First,  facility  of  collecting  pro-rata  shares 
of  the  cost  from  users  of  the  improvement ;  as  in 
the  case  of  highways,  bridges,  canals,  etc. ;  but, 
on  the  contrary,  certain  ill-workings  of  the  toll 
system  lead  to  a  somewhat  futile  discussion  of 
the  relative  advantages  of  private  and  public 
ownership  of  toll  rights,  and  to  anticipation  of 
questions  of  taxation,  which  had  been  assigned 
to  the  next  chapter.    Second,  in  the  case  of  works 


necessary  to  facilitate  some  particular  branches 
of  commerce  (e.  g.,  forts  and  troops  in  the  case 
of  the  East  India  Company),  the  reasonableness 
of  collecting  the  cost  from  the  protected  inter- 
est. The  reasonableness  alleged  seems  to  rest  on 
a  plain  quid  pro  quo  basis.  Third,  the  justice  of 
levying  customs  duties  and  the  like  for  defraying 
the  cost  of  defending  trade  in  general.  This 
justice  also  rests  at  last  upon  the  qttid  pro  quo 
basis.  Fourth,  the  inexpediency  of  intrusting  the 
collection  of  costs  of  such  defense  to  private 
companies  (East  India,  Turkish,  etc.).  The 
evidence  supporting  this  count  includes  nearly 
every  type  of  economic  injustice.  Fifth,  the 
economic  incompetence  of  joint  stock  companies.^^ 
Sixth,  the  expediency  of  making  the  service  carry 
the  cost,  as  by  fees  from  pupils  (in  the  case  of 
schools).  This  count  is,  in  our  view,  the  same 
as  the  first.  It  introduces,  however,  the  irrele- 
vant question : 

Have  private  or  local  endowments  contributed  in 
general  to  promote  the  end  of  their  institution?  Have 
they  contributed  to  encourage  the  diligence,  and  to  im- 
prove the  abilities  of  the  teachers?  Have  they  directed  the 
course  of  education  towards  objects  more  useful,  both 
to  the  individual  and  to  the  public,  than  those  to  which  it 
would  naturally  have  gone  of  its  own  accord." 

"II,  pp.  262  ff.  "II,  p.  281. 


Then  follows  an  extended  discussion  of 
administrative  policies  in  educational  institutions. 
The  whole  argument  suggests  General  Walker's 
easy  transition  from  pure  economics  to  public 
policy  on  complex  questions,  without  critical 
examination  of  other  factors  of  the  problem 
except  the  economic.  The  discussion  is  an  uncon- 
scious illustration  of  the  impossibilty  of  abiding 
by  the  economic  abstraction  when  dealing  with 
anything  beyond  the  purely  technical  phases  of 
production.  The  passage  is  at  the  same  time  an 
instance,  so  serious  that  it  is  humorous,  of  the 
characteristic  sciolism  of  the  classical  economists 
in  assuming  competence  to  make  their  economic 
generalizations  the  sufficient  basis  for  authorita- 
tive discourse  upon  matters  and  things  in  general. 
Here  is  a  disquisition  on  the  virtues  and  vices 
of  pedagogy,  from  the  Greeks  to  the  Georges, 
smuggled  into  a  treatise  on  public  finance  !^^ 

It  should  be  said,  in  partial  extenuation,  that 
in  this  portion  of  his  work  Smith  seems  fo  have 
felt  at  liberty  to  wander  from  his  theme.  He 
really  inserts  a  series  of  encyclopaedia  articles 
rather  loosely  connected  with  the  specific  theo- 
rems which  the  bare  analysis  of  his  argument 
called  upon  him  to  support.  These  homiletical 
gratuities  contain  much  wisdom,  but  they  are  as 

"  II,  pp.  281-308.  Cf.  reference  to  Bagehot,  above,  p.  T2. 


out  of  place  as  a  silk  hat  with  a  sack  coat.  These 
disquisitions  do  not  belong  with  a  discussion  of 
the  problems  of  public  revenue,  unless  the  whole 
subject  of  public  revenue  is  organized  into  a 
much  wider  philosophy  of  society  than  Smith 
has  outlined  in  The  Wealth  of  Nations.  All  he 
needs  for  the  immediate  uses  of  his  main  inquiry 
is  a  list  of  the  actual  purposes  for  which  the 
British  type  of  society  must  provide.  In  such  an 
excursus  as  the  one  just  noted  he  does  not  go 
far  enough  to  get  at  the  roots  of  the  question: 
Should  society  provide  at  all  for  such  an  object? 
He  merely  goes  far  enough  to  make  his  real 
argument  carry  a  needless  burden  of  luggage. 

The  same  comments  are  in  point  in  connection 
with  the  next  subject,  "Of  the  Expence  of  the 
Institutions  for  the  Instruction  of  People  of 
All  Ages."  The  substance  of  the  section  may  be 
inferred  from  the  opening  sentence:  ^'The  insti- 
tutions for  the  instruction  of  people  of  all  ages 
are  chiefly  those  for  religious  instruction.''  Then 
follows  an  abbreviated  history  and  critique  of 
ecclesiastical  institutions.^^  It  is  grotesquely  out 
of  proportion,  in  whatever  light  it  is  considered. 
For  the  reason  alluded  to  in  the  case  of  schools, 
it  is  uncalled  for  as  a  preliminary  to  discussion 
of  British  revenues.     As  a  treatise  on  the  struc- 

^«  II,  pp.  309-39. 


ture  and  functions  of  ecclesiastical  institutions  as 
tributary  to  civilization  in  general,  it  opens  up  all 
the  unsettled  questions  of  sociology.  A  founda- 
tion of  general  sociology  would  have  to  be 
installed  before  opinions  on  such  complex  sub- 
jects could  have  a  scientific  basis.  As  in  the 
section  on  educational  institutions,  this  inquiry 
into  the  administration  of  ecclesiastical  institu- 
tions is  full  of  partially  generalized  and 
partially  co-ordinated  wisdom.  The  closing 
paragraph  is  characteristic : 

The  proper  performance  of  every  service  seems  to  re- 
quire that  its  pay  or  recompense  should  be,  as  exactly  as 
possible,  proportioned  to  the  nature  of  the  service.  If 
any  service  is  very  much  underpaid,  it  is  very  apt  to 
suffer  by  the  meanness  and  incapacity  of  the  greater  part 
of  those  who  are  employed  in  it.  If  it  is  very  much  over- 
paid, it  is  apt  to  suffer,  perhaps,  still  more  by  their  negli- 
gence and  idleness.  A  man  of  a  large  revenue,  whatever 
may  be  his  profession,  thinks  he  ought  to  live  like  other 
men  of  large  revenues ;  and  to  spend  a  great  part  of  his 
time  in  festivity,  in  vanity,  and  in  dissipation.  But  in  a 
clergyman,  this  train  of  life  not  only  consumes  the  time 
which  ought  to  be  employed  in  the  duties  of  his  function, 
but  in  the  eyes  of  the  common  people  destroys  almost  en- 
tirely that  sanctity  of  character  which  can  alone  enable 
him  to  perform  those  duties  with  proper  weight  and  au- 

Part  IV  in  Chapter  I  of  Book  V  was  referred 

"  11,  p.  339. 


to  above  in  evidence  of  the  shifting  senses  in 
which  Smith  uses  the  term  "sovereign."  The 
title  of  the  section  is,  "Of  the  Expence  of  Sup- 
porting the  Dignity  of  the  Sovereign."  Here  it 
is  plain  that  the  "sovereign"  is  not  the  state,  nor 
the  people,  but  the  monarch.  The  plain  proposi- 
tion which  is  in  the  line  of  the  prospectus  of 
Book  V  is  merely  that  the  public  revenues  must 
provide  for  the  support  of  the  chief  magistrate. 
Smith  incontinently  restricts  himself  to  a  skimpy 
half-page  on  this  subject,  when  by  parity  of  rea- 
soning it  might  fairly  have  consumed  at  least  a 
score  of  pages.  Then,  as  though  under  conviction 
of  sin  for  his  errors  of  commission  in  the  one- 
hundred-and-thirty-four-page-long  chapter,  he 
recapitulates  all  that  is  really  pertinent  in  it  in 
less  than  two  pages.  Still  further  abbreviated, 
it  amounts  to  this : 

The  expence  of  defending  the  society,  and  that  of  sup- 
porting the  dignity  of  the  chief  magistrate,  are  both  laid 
out  for  the  general  benefit  of  the  whole  society.  It  is 
reasonable,  therefore,  that  they  should  be  defrayed  by  the 
general  contribution  of  the  whole  society,  all  the  different 
members  contributing,  as  nearly  as  possible,  in  proportion 
to  their  respective  abilities.  Other  items  of  national  ex- 
pence  are  not  so  obviously  for  the  benefit  of  the  common- 
wealth as  a  whole.  The  burden  of  these  items  may, 
therefore,  reasonably  be  borne  in  part  by  *he  particular 
persons  who  cause  the  expence,  or  get  the  initial  benefit 


of  it  Such  items  are  the  administration  of  justice,  local 
or  provisional  outlays,  turnpikes,  educational  or  ecclesi- 
astical institutions,  etc.  The  general  revenue  of  the 
society,  over  and  above  defraying  the  expence  of  defend- 
ing the  society,  and  of  supporting  the  dignity  of  the  chief 
magistrate,  must  make  up  for  the  deficiency  of  many  par- 
ticular branches  of  revenue." 

Recurring  to  a  point  mentioned  above,  the 
reader  will  probably  have  noticed  that  the  sched- 
ule of  reasons  for  appropriating  public  expenses 
between  the  commonwealth  and  certain  more  in- 
terested or  responsible  members  of  the  state, 
hardly  bore  the  evidence  of  completeness.  One 
need  not  be  an  expert  in  higher  criticism  to  be 
tolerably  confident  in  the  opinion  that  Smith  was 
not  thoroughly  clear  in  his  own  mind  as  to  what 
he  was  trying  to  do  in  the  chapter.  It  contains  a 
number  of  incoherent  ventures  in  general  social 
philosophy.  Among  them  the  least  successful 
was  the  excursion  into  administrative  philos- 
ophy, in  which  he  attempted  to  outline  a  scheme 
of  apportioning  civic  expenses.  His  program 
stimulates  the  expectation  that  he  will  try  to 
probe  the  subject  thoroughly.  He  disappoints 
this  hope  ignominiously.  His  treatment  of  the 
subject  is  altogether  sophomoric.  With  the  excep- 
tion   of    the    six    reasons    scheduled    above,    he 

"11,  p.  341. 


avoids  the  problem  altogether,  and  has  recourse 
to  the  diversions  in  general  social  philosophy 
which  we  have  reviewed. 

But  is  it  not  finical,  and  even  self-contra- 
dictory, to  begin  with  laudation  of  Adam  Smith 
for  casting  his  whole  conception  of  life  within  a 
framework  of  general  moral  philosophy,  and 
to  end  by  reproaching  him  for  applying  his 
economic  technology  to  concrete  moral  situations  ? 
Yes;  if  that  were  what  is  meant  by  the  foregoing 
criticisms,  they  would  be  both  inconsistent  and 
petulant.  That  is  not  what  is  meant.  The  criti- 
cism just  passed  is  not  an  objection  to  the  appli- 
cation of  economic  technique  to  decisions  about 
complex  questions  of  public  policy.  The  objec- 
tion is  to  confusion  of  the  technical  economic 
factors  in  questions  of  policy  with  other  factors; 
and  especially  to  premature  waiving  of  the  neces- 
sary social  analysis,  and  substitution  of  miscel- 
laneous generalization  for  analysis  of  the  social 
factors  to  the  limit.  The  question,  for  example, 
of  the  type  of  educational  or  religious  establish- 
ments most  conducive  to  the  welfare  of  a  nation 
is  an  altogether  broader  question  than  can  prop- 
erly be  discussed  on  the  mere  basis  of  a  theory 
of  public  finance.  Each  of  these  questions  pre- 
supposes preliminaries  which  involve  the  whole 
scope  of  sociological  theory.     The  problems  of 


public  revenue  are  factors  in  such  a  theory,  but 
they  are  only  factors.  They  are  not  the  compre- 
hensive theory  itself.  Logically,  therefore,  there 
is  no  more  justification  for  interpolating  the  pas- 
sages to  which  objection  has  been  taken  in  a 
treatise  on  national  revenue  than  there  would  be 
for  smuggling  them  into  a  treatise  on  military 
and  naval  strategy,  or  for  an  excursus  on  the  latter 
subjects  in  the  discussion  of  the  main  question 
of  public  support  of  the  military  system.  We 
maintain  armies  and  navies  partly  to  defend 
schools  and  churches,  just  as  we  maintain 
national  revenue  systems  to  furnish  schools  and 
churches  with  supplies.  Questions  of  academic 
and  ecclesiastical  administration,  however,  are 
thrust  altogether  out  of  proportion  and  perspec- 
tive, if  they  are  made  corollaries  either  of  fiscal 
or  of  military  theory. 

Chapter  II  of  Book  V  returns  to  distinctly 
technological  method.  It  is,  however,  primarily 
descriptive  rather  than  constructive.  Its  subject 
is :  "The  Sources  of  the  General  or  Public  Rev- 
enue of  the  Society."  The  substance  of  Part  I 
of  the  chapter  may  be  compressed  into  these 
propositions : 

The  revenue  which  must  defray,  not  only  the  expences 
of  defending  the  society  and  of  supporting  the  dignity 
of  the  chief  magistrate,  but  all  the  other  necessary  ex- 


pences  of  government,  for  which  the  constitution  of  the 
State  has  not  provided  any  particular  revenue,  may  be 
drawn  either,  first,  from  some  fund  which  peculiarly  be- 
longs to  the  sovereign  or  commonwealth,  and  which  is 
independent  of  the  revenue  of  the  people;  or,  secondly, 
from  the  revenue  of  the  people. 

The  funds  or  sources  of  revenue  which  may  peculiarly 
belong  to  the  sovereign  or  commonwealth  must  consist, 
either  in  stock,  or  in  land.  The  sovereign,  like  any  other 
owner  of  stock,  may  derive  a  revenue  from  it,  either  by 
employing  it  himself,  or  by  lending  it.  His  revenue  is  in 
the  one  case  profit,  in  the  other  interest." 

Public  stock  and  public  lands,  therefore,  the  two 
sources  of  revenue  which  may  peculiarly  belong  to  the 
sovereign  or  comomnwealth,  being  both  improper  and  in- 
sufficient funds  for  defraying  the  necessary  expence  of 
any  great  and  civilized  state;  it  remains  that  this  expence 
must,  the  greater  part  of  it,  be  defrayed  by  taxes  of  one 
kind  or  another;  the  people  contributing  a  part  of  their 
own  private  revenue  in  order  to  make  up  a  public  revenue 
to  the  sovereign  or  commonwealth." 

Throughout  Book  V,  and  notably  in  Part  II 
of  Chapter  II,  it  gradually  becomes  plain  that  the 
whole  basis  of  discussion  has  shifted  from  the 
purely  economic,  and  has  become  the  economic 
plus.  Is  that  plus  merely  administrative  expedi- 
ency? Is  the  criterion  of  judgment  which  Smith 
applies  merely  a  composite  of  economic  and  civic 
utility?    Is  the  standard  remotely  and  vaguely  in 

"  II,  p.  342. 
"II,  pp.  350,  351. 


view  economic  and  civic,  with  a  further  unformu- 
lated plus  which  is  more  intimately  human? 

I  am  inclined  to  think  the  third  alternative  is 
nearest  the  truth.  It  is  certain  that  Smith  does 
not  pass  judgment  upon  revenue  devices  solely  for 
their  bearing  upon  the  production  of  national 
wealth.  That  is,  the  strictly  and  exclusively  eco- 
nomic criterion  with  which  the  treatise  started  has 
been  consciously  or  unconsciously  retired,  and  a 
multiple  criterion  has  taken  its  place.  It  is  evident, 
too,  that  questions  of  administrative  convenience 
are  permitted  now  to  turn  the  scale  for  or  against 
possible  programs.  These  are  brought  into  a 
sphere  of  civic  economy  which  overlies  the 
sphere  of  productive  economy,  and  sometimes 
vetoes  maxims  of  conduct  which  productive 
economy    alone    would    enforce.^^    There    also 

"  The  Wealth  of  Nations  enthalt  eine  Oekonomik  und  eine 
Politik,  und  es  gehort  zu  den  auffallendsten  Thatsachen  der 
Geistesgeschichte,  dass  man  diesen  letzteren  Umstand  bisher 
so  gut  wie  ganz  iibersehen  oder  besser  ignorirt  hat"  (Oncken, 
Smith  und  Kant,  p.  14). 

In  the  next  paragraph  Oncken  continues :  "Zwar  umfasst 
die  Smith'sche  Staatslehre  nur  das  letzte  der  fiinf  Biicher,  aus 
welchen  das  ganze  Werk  besteht,  aber  dieses  Buch  fiillt  nahezu 
den  dritten  Theil  des  Wealth  of  Nations  aus  und  enthalt  eine 
ausfiihrliche  Darlegung  und  Beurtheilung  einerseits  der  Staats- 
zwecke   in   ihren    einzelnen    Richtungen   und   andererseits   der 

Staatsmittel Wir     haben     es     dabei     mit     einer     abge- 

rundeten  Staatslehre  zu  thun,  die  nach  eigenen  von  der  Volks- 


hovers  on  the  horizon  a  range  of  relations  which 
are  neither  definitely  economic  nor  civic.  They 
have  certain  imperatives  of  their  own  which 
vaguely  interpose  themselves  in  estoppal  of  purely 
economic  or  civic  programs,  although  they  do  not 
come  out  fairly  into  the  open  and  give  a  distinct 
account  of  themselves.  In  these  latter  considera- 
tions the  more  widely  moral  in  Smith's  concep- 

wirthschaft  unterschiedenen  Gesichtspunkten  gegliedert  ist  und 
eine  Hohe  des  Standpunktes  einnimmt,  wie  sie  in  manchen 
Dingen  noch  kaum  von  der  Gegenwart  (1877)  eingeholt  wor- 
den  ist,  ein  Umstand,  der  vielleicht  gerade  die  Schuld  tragt, 
dass  die  Theorie  bisher  keine  grossere  Beachtung  gefunden 
hat."  Oncken  seems  to  me  to  have  judged  Book  V  more  favor- 
ably than  it  deserves.  Smith  had  simply  not  thought  through 
the  distinctions  that  separate  the  problems  of  economics  from 
those  of  civics  ;  or,  if  he  had,  he  did  not  organize  his  material 
accordingly.  The  fact  that  nearly  one-half  of  the  Lectures 
on  Justice,  etc.,  was  virtually  a  preliminary  sketch  of  The 
Wealth  of  Nations  might  perhaps  have  been  cited  by  Oncken, 
if  the  book  had  appeared  before  he  wrote,  in  support  of  his 
interpretation.  It  is,  however,  on  the  whole,  in  my  judgment, 
evidence  in  favor  of  my  view. 

I  am  not  so  much  inclined  to  take  issue  with  Oncken's 
astute  suggestion  that  the  title  of  Smith's  work  should  properly 
have  been :  "An  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  and  Power  of  Nations."  This  suggestion  is  prompted 
by  Smith's  definition  of  political  economy.  Book  II,  Chapter  V : 
"The  great  object  of  the  political  economy  of  every  country 
is  to  increase  the '  riches  and  power  of  that  country." 
Granted  that  the  inference  is  valid,  my  contention,  that  analy- 
sis of  the  problems  was  only  in  embryo  in  Smith's  thought, 
and  in  the  plan  of  the  treatise,  is  all  the  stronger. 


tions  is  vaguely  asserting  itself,  but  the  fact  of 
the  assertion  and  its  implications  are  too  indefinite 
to  make  a  decisive  impression.  We  have  a  case 
of  a  more  particular  abstraction  feeling  its  way 
toward  correlation  with  a  more  general  reality. 
Meanwhile  the  resultant  is  a  predominant  tend- 
ency to  express  the  reality  in  terms  of  the 
abstraction  rather  than  the  reverse.  This  tend- 
ency held  the  balance  of  power,  and  still  holds  it, 
but  there  are  credible  signs  that  the  balance  of 
power  is  rapidly  passing  from  the  party  of 
abstraction  to  the  party  of  reality. 

It  is  impossible  to  decide  how  much  of  Book 
V,  Part  II,  Chapter  II,  is  an  exemplification  of 
each  of  the  tendencies  above  indicated.  They 
are  traceable  in  it  in  uncentered  confusion.  The 
fact  is  that  we  have  in  this  chapter,  not  science 
of  any  sort,  in  the  strict  sense,  but  merely  that 
more  or  less  organized  description  of  phenomena 
which  is  the  necessary  preliminary  of  science. 
The  generalizations  have  the  value  of  more  or 
less  probable  hypotheses,  and  they  foreshadow 
the  differentiation  of  the  various  divisions  of 
social  science  which  shall  be  competent  to  test  all 
the  terms  of  the  hypotheses. 

Part  II  of  Chapter  II  treats  of  taxes.  As  was 
intimated  above,  it  is  not  to  be  regarded  as  the 
outline   of   a   theory   of   taxation,   whether   the 


author  intended  it  for  that  or  not.  It  turns  out 
to  be,  in  effect,  principally  a  preliminary  essay 
giving  an  account  of  different  forms  of  taxation. 
The  animus  of  the  chapter  may  be  gathered  from 
the  opening  paragraph: 

The  private  revenue  of  individuals,  ....  arises  ulti- 
mately from  three  different  sources :  Rent,  Profit,  and 
Wages.  Every  tax  must  finally  be  paid  from  some  one 
or  other  of  those  three  sorts  of  revenue,  or  from  all  of 
them  indifferently.  I  shall  endeavour  to  give  the  best 
account  I  can,  first,  of  those  taxes  which,  it  is  intended,^' 
should  fall  upon  rent;  secondly,  of  those  which,  it  is  in- 
tended, should  fall  upon  profit;  thirdly,  of  those  which, 
it  is  intended,  should  fall  upon  wages;  and,  fourthly,  of 
those  which,  it  is  intended,  should  fall  indifferently  upon 
all  those  three  different  sources  of  private  revenue.  The 
particular  consideration  of  each  of  these  four  different 
sorts  of  taxes  will  divide  the  second  part  of  the  present 
chapter  into  four  articles,  three  of  which  will  require 
several  other  subdivisions.  Many  of  those  taxes,  it  will 
appear  from  the  following  review,  are  not  finally  paid 
from  the  fund,  or  source  of  revenue,  upon  which  it  was 
intended  they  should  fall.^ 

In  spite  of  the  qualification  just  made,  the 
chapter  lays  down  four  "maxims  with  regard  to 
taxes  in  general."  They  corroborate  what  was 
said  above  about  the  extension  of  Smith's  vision 
beyond  the  orbit  of  his  precise  analysis.   Although 

^"  I   have  italicized   this   phrase  because  it   must  be   com- 
mented on  presently. 
="11,  p.  351. 


they  are  not  supported,  so  far  as  his  own  work 
goes,  by  a  critical  examination  of  the  whole 
sociology  of  taxation,  they  have  exerted  a  last- 
ing influence  upon  the  development  of  doctrines 
of  taxation.  They  are  as  follows : 
V  I.  The  subjects  of  every  state  ought  [«#jtf^  to  contribute 
toward  the  support  of  the  government,  as  nearly  as  pos- 
sible, in  proportion  to  their  respective  abilities ;  that  is,  in 
proportion  to  the  revenue  which  they  respectively  enjoy 
under  the  protection  of  the  state. 

II.  The  tax  which  eadi  individual  is  bound  to  pay 
ought  [#f*J  to  be  certain  and  not  afbitrary.  The  time 
of  payment,  the  manner  of  payment,  the  quantity  to  be 
paid,  ought  t^iH  all  to  be  clear  and  plain  to  the  con- 
tributor and  to  every  other  person. 

III.  Every  tax  ought  l^sie^  to  be  levied  at  the  time,  or 
in  the  manner  in  which  it  is  most  likely  to  be  convenient  for 
the  contributor  to  pay  it. 

IV.  Every  tax  ought  t*fe»]  to  be  so  contrived  as  both 
to  take  out  and  to  keep  out  of  the  pockets  of  the  people 
as  little  as  possible,  over  and  above  what  it  brings  into  the 
public  treasury  of  the  state."      • 

Whence  these  "oughts"?  In  no  strict  sense 
can  the  word  "ought"  belong  in  the  economic 
vocabulary.  It  is  a  term  of  moral,  not  of  economic, 
technology.     At  the  same  time,  taxation  is  in 

**  II,  pp.  351-53.  Oncken  (Smith  und  Kant,  pp.  247-50) 
attempts  to  show  that  these  four  rules  are  substantially  in 
Montesquieu,  Esprit  des  his.  Lib.  XIII.  In  the  same  connec- 
tion (p.  246)  Oncken  remarks :  "Diese  vier  Regeln  sind  seit- 
dem  in  alien  Werken  der  Finanzwissenschaft  als  fundamentale 


no  strict  sense  simply  an  economic  process.  It 
is  a  function  of  the  total  life  of  the  people. 
"Ought"  art,  science,  religion,  to  be  taxed?  If 
so,  why?  If  not,  why  not?  These  are  questions 
of  the  most  inclusive  social  philosophy.  It  is 
impudent  for  economics  alone  to  presume  to 
answer  them.  It  is  highly  improbable  that  Smith 
supposed  his  **oughts"  got  their  force  from  his 
economics  alone.  He  was  more  or  less  con- 
sciously and  deliberately  mobilizing  in  them  his 
whole  moral  philosophy.  He  virtually  asserted 
in  them:  "All  that  I  know  about  social  rela- 
tions in  general  combines  to  declare  that  these 
things  ought  to  be  in  a  righteous  system  of 
taxation."  Here,  then,  is  another  occasion  for 
reiterating  one  of  my  principal  theses  about  the 
relation  of  Adam  Smith  to  later  social  theory. 
He  realized  in  the  beginning,  and  after  his  epoch- 
making  concentration  for  a  time  upon  pure 
economic  theory  he  came  back  of  necessity  to 
practical  profession,  that  human  conduct  is  a 
plexus  of  moral  relations.     The  implications  of 

Gesichtspunkte  aufgefuhrt  worden,  aber  sie  sind  in  der  selben 
unentwickelten  Gestalt  geblieben  wie  bei  Smith  selbst.  Sie 
stehen  ganz  isolirt  fur  sich  da  und  sind  so  auch  weiter  gefiihrt 
worden,  merkwiirdigerweise  als  das  Einzige  was  von  der 
Smith'schen  Finanzlehre  iiberhaupt  eine  nachtragliche  Beach- 
tung  gefunden  hat."  Perhaps  I  have  sufficiently  hinted  below 
why  the  last  fact  noted  is  not  at  all  surprising. 


all  these  relations,  not  merely  of  an  abstract 
series  of  them,  must  be  found  out,  in  order  to 
establish  a  working  theory  of  conduct.  Economic 
theory  did  not  at  once  take  its  cue  from  this 
broad  conception.  It  overemphasized  the  value 
of  economic  theory  by  underestimating  the  value 
of  the  other  sets  of  relationships  in  society.  This 
arrested  development  occupied  nearly  a  century, 
before  the  moral  argument  latent  in  Adam 
Smith's  philosophy  began  to  make  its  impression 
in  the  methods  of  the  sociologists.  Smith  him- 
self seems  to  have  reached  the  limits  of  his 
impulse  to  work  out  a  concrete  moral  philosophy 
in  a  description  of  different  schemes  of  taxation, 
"with  some  incidental  judgments  about  the  better 
or  worse  workings  of  the  plans.  It  might  be 
charged  that  Smith  actually  attempted  something 
more  constructive  than  this.  It  is  quite  possible 
to  interpret  the  rest  of  the  discussion  of  taxes  as 
a  thoroughly  doctrinaire  attempt  to  justify  a 
definite  program  of  taxation.  There  is  plenty 
of  evidence  that  the  descriptive  and  historical 
form  was  merely  a  thin  veil  for  a  firm  dogmatic 
substance.  I  prefer  to  give  him  the  benefit  of 
the  doubt,  especially  as,  in  either  case,  his  type 
of  work  was  in  effect  merely  a  display  of  the 
need  of  more  critical  and  differentiated  science. 
In  his  standards  of  judgment  various  types  of 


criteria  were  evidently  combined.  He  introduces 
his  sketch  of  taxation  systems  in  the  following 
paragraph :  ^^ 

The  evident  justice  and  utility  of  the  foregoing  max- 
ims ^"^  have  recommended  them  more  or  less  to  the  atten- 
tion of  all  nations.  All  nations  have  endeavoured  to  the 
best  of  their  judgment,  to  render  their  taxes  as  equal  as 
they  could  contrive;  as  certain,  as  convenient  to  the  con- 
tributor both  in  the  time  and  in  the  mode  of  payment,  and 
in  proportion  to  the  revenue  which  they  brought  to  the 
prince,  as  little  burdensome  to  the  people.  The  following 
short  review  [sic]  of  some  of  the  principal  taxes  which 
h^'ave  taken  place  in  different  ages  and  countries  will  show, 
that  the  endeavours  of  all  nations  have  not  in  this  respect 
been  equally  successful. 

All  the  general  criticisms  which  have  been^ 
passed  on  Book  V,  Chapter  II,  apply  with  equal 
pertinence  to  Chapter  III,  the  last  in  the  book, 
"Of  Public  Debts."  It  is  mainly  a  continuance 
of  the  subject  of  public  revenues.  It  is  primarily 
descriptive  rather  than  systematic.  It  does  not 
clearly  discriminate  between  economic  and  moral 
effects.  It  does  not  stick  to  the  subject.  It 
includes  a  passage  on  debasement  of  the  coinage. 
It  returns  to  the  subject  of  taxation,  and  even  to 
the  methods  of  exploiting  the  colonies.  It  dis- 
cusses the  use  of  paper  money,  and  it  raises  the 
Irish  question. 

^11,  p.  354. 

^*  L  e.,  morals  on  the  one  hand,  and  economics  on  the  other. 



If  logic  and  a  deliberate  methodology  ruled 
the  world,  or  even  the  supposedly  intellectual 
part  of  it,  Adam  Smith  would  have  been  as 
immediately,  if  not  as  intensely,  influential  upon 
concrete  moral  philosophy,  or  sociology,  as  he 
was  upon  economics.  There  is  a  good  deal  of 
plausibility  in  the  Marxian  version  of  the  reasons 
why  logic  did  not  have  its  perfect  work  in  the 
social  theories  of  the  century  following  the 
publication  of  The  Wealth  of  Nations.  The 
Marxian  explanation,  however,  falls  very  far 
short  of  the  whole  psychology  of  the  events. 
The  fact  remains  that  Smith  set  a  new  standard 
of  inquiry  into  the  economic  section  of  the  condi- 
tions of  life,  while  life  presented  itself  to  him 
as,  on  the  whole,  a  moral  affair,  in  which  the 
economic  process  is  logically  a  detail.  The 
further  fact  remains  that  all  the  consistencies  of 
logic  enjoined  analysis  of  the  whole  process 
which  human  experience  composes,  so  that  knowl- 
edge of  all  the  antecedent  conditions  and  con- 
stituent processes  of  life  might  become  as  positive 
as  the  knowledge  of  economic  technology  which 


Smith  set  a  new  pace  in  acquiring.  The  third  fact 
remains  that  a  suspensive  veto,  analyze  it  how  we 
will,  held  that  wider  moral  science  pretty  effectu- 
ally in  check  for  a  century.  It  was  in  embryo  in 
Adam  Smith's  moral  philosophy.  The  need  of  it 
was  encountered  in  his  doctrinizings  abou^  social 
relations  which  were  more  than  economic. 
Men's  interests  in  these  wider  social  relations 
were  too  weak  effectively  to  divert  attention  from 
all  that  immediately  pertained  to  wealth.  This 
diagnosis  applies  throughout  the  century  follow- 
ing Adam  Smith.  Men  so  focalized  the  wealth 
interests  that  all  other  interests  became  relatively 

If  rhetoric  which  confessedly  recalls  the  flick- 
ering fame  of  the  late  Mr.  Joseph  Cook  may  be  . 
employed  to  express  the  situation,  the  social 
sciences  were  still  a  metaphysical  Bastille  which 
could  be  destroyed  only  from  within.  Mental 
revolt  had  pierced  a  few  observation-slots  through 
the  inner  walls  of  the  prison,  and  had  sapped  and 
mined  parts  of  the  outer  inclosure.  Although 
we  can  now  see  that  the  structure  founded  on  the 
Thomasian  theology  was  crumbling,  it  still 
effectually  immured  knowledge.  The  series  of 
assaults,  beginning  with  Descartes,  continued  in 
the  line  of  Locke  and  Hume  in  England,  of 
Wolff  and  Kant  in  Germany,  had  widened  the 


putlook  breaches,  to  be  sure,  but  had  also  par- 
tially filled  them  with  intellectual  debris.  Psy- 
chology was  still  more  speculative  than  positive. 
Ethics  was  metaphysical  rather  than  inductive. 
Sociology,  so  far  as  it  had  been  extemporized 
byv  the  struggle  for  liberty,  was  uncentered  and 
individualistic,  with  only  a  faint  premonition  of 
the  social  reality.  Not  until  physical  science  and 
psychology  and  ethics  became  fully  self-conscious 
could  they  together  develop  force  enough  com- 
pletely to  raze  the  dogmatic  dungeon,  and  to 
found  in  its  place  a  free  republic  of  moral 

Dropping  the  figure,  we  may  say  literally  that 
it  was  too  much  of  a  task  for  the  interpreters  of 
human  experience  to  develop  at  once  the  full 
logical  implications  of  the  progressive  principles 
imbedded  in  Adam  Smith's  system.  The  recon- 
struction on  the  physical  side  that  is  symbolized 
by  the  name  of  Darwin  was  an  indispensable  aid. 
Psychological  analysis,  taking  a  new  start  with 
Hegel's  Phdnomenenologie  des  Geistes,  had  to 
establish  intellectual  self-confidence  and  to  supply 
a  critical  technique.  Not  least  important,  per- 
haps, the  little  group  of  Benthamites,  even  more 
ignorantly  feared  and  more  arrogantly  misrepre- 
sented as  utilitarians  than  as  economists,  were 
needed  to  break  the  monopoly  of  the  superstitions 


which  were  estopping  real  investigation  of  the 
origin  and  standards  of  our  moral  valuations. 
After  the  way  had  been  prepared,  and  the  critical 
apparatus  had  been  invented  for  that  program  of 
ethical  judgment  which  I  have  called  telicism,^ 
the  line  of  march  could  once  more  be  resumed. 
The  fulness  of  the  times  had  come  for  co-ordina- 
tion of  the  most  matter-of-fact  economic  tech- 
nology with  a  thoroughly  objective  sociology, 
within  the  horizon  of  a  valid  moral  philosophy. 
We  are  entering  a  period  in  which  judgment  of 
social  relations  is  to  operate  in  full  vision  of  this 
larger  and  truer  perspective. 

It  is  therefore  not  fanciful  to  repeat  in  sub- 
stance the  proposition  with  which  this  inquiry 
began,  viz. :  Modern  sociology  is  virtually  an 
attempt  to  take  up  the  larger  program  of  social 
analysis  and  interpretation  which  was  implicit 
in  Adam  Smith's  moral  philosophy,  but  which 
was  suppressed  for  a  century  by  prevailing  inter- 
est in  the  technique  of  the  production  of  wealth. 

^  General  Sociology,  pp.  669-84,  et  passim. 



Agricultural  systems  of  political  economy,   Smith's  views 

of,  202  ff. 
Analysis  vs.  synthesis,  v 

Anderson,  J.  P.,  bibliography  of  A.  Smith,  34,  65 
Approbation,  place  of,  in  Smith's  theory,  46,  50,  82 
Argument  of  this  book,  21,  24,  66,  'JT,  155  ff.,  196  ff.,  238 
Arts  and  Science,  Congress  of,  v,  64 


Bacon,   Lord,  28 

Bagehot,  W.,  on  The  Wealth  of  Nations,  61,  67,  68,  70  ff., 

77,  loi,  103,  104,  183 
Bax,  E.  B.,  edition  of  The  Wealth  of  Nations,  65 
Bellamy,  E.,  86 
Bentham,  J.,  204,  237 
Bohm-Bawerk,  E.  von,   141,   159 
Boisguillebert,  P.  L.  P.  de,  195 
Bonar,  J.,  29 
Burke,  E.,  26 
Butler,  W.  A.,  27 


Cannan,  E.,  edition  of  Smith's  lectures,  26,  59,  204 

Cantillon,  R.,  195 

Cook,  J.,  236 

Capital,  economics  and  sociology  of,  155-80 

Capital,  ways  of  employing;  Smith's  classification,  176  ff. 

Capitalism,  genius  of,  2 

Capitalists,  Smith's  suspicions  of,  153,  154 



Capitalists,  social  justification  of,   129 

Capitalization  or  consumption.  Smith's  doctrine  of,  168  ff. 

Capital  vs.  labor,  economic  not  social  antithesis  at  Smith's 
time,  100,  128 

Classical  economics,  4,  10,  16,  23,  24,  67  ff.,  147 ;  assumption 
of  paramount  worth  of  wealth,  148,  199;  defection  of, 
from  Smith's  moral  standards,  139,  148;  statical 
presumptions  of,  138,  200  ff. ;  vs.  democracy,  145  ff,, 
215;  vs.  socialism,  131,  143  ff.;  vs.  social  philosophy, 

Communist  manifesto,  no 

Congress  of  arts  and  science,  v 

Consumption  vs.  capitalization.  Smith's  doctrine  of,  168  ff. 

Consumption  vs.  production,  3,  79 

Cossa,  L.,  28,  64 

Customary  price  vs.  "natural"  price,  122  ff. 

Customary  vs.  natural  rights,  123  ff. 


Darwin,  C,  57,  237 

Debts,  public,  Smith's  views  on,  233 

Democracy  vs.   classical   economics,    145  ff, ;    vs.   privilege, 

principle  at  issue  between,  123  ff, ;  vs.  property,  153 
Descartes,  28,  40,  236 
Distribution,  social  problem  of,  166 
Dividends,  Smith's  denial  that  they  are  reward  of  labor, 

118,   150 
Division  of  labor,  effects  of,  85  ff. 
Dyer,  L.,  64 


Economic  history,  methodological  relations  of,  17-19 
Economics,  literature  of,  64 

INDEX  241 

Economics  and  sociology,  vi,  vii,  3,  8,  10,  14,  23,  64,  65,  'j'j, 
144  f.,  146,  156,  196  ff.,  209  ff.,  218  ff.,  223,  232,  235  ff. 

Economic  theory,  necessary  reconstruction  of,  179,  180 

Economic  vs.  sociological  interpretation  of  history,  181-87 

Economists,  early;  humane  purpose  of,  vi 

Economists,  have  they  regarded  themselves  as  compe- 
tent guides  of  conduct,  72 

Entail,  historic  reasons  for,  185 

Epictetus,  39 

Equality  of  endowments.  Smith's  theory  of,  93 

Finance,  national,  methodological  relations  of,  20 
Finance,  Smith's  doctrines  of,  28 
Fisher,  I.,  160 

George,  H.,  143 

German  vs.  English  economics,  10 
Germany,  policy  of,  with  respect  to  "unearned  increment, 

Gournay,  J.  C.  V.  de,  195 
Grotius,  H.,  28 


Haldane,  R.  B.,  34,  53,  65 

Hamilton's  edition  of  D.  Stewart's  works,  25 

Hartley,  D.,  27 

Hasbach,  W.,  5,  27,  28,  29 

Hegel,  G.  W.  F.,  113,  237 

Hirst,  F.  W.,  Life  of  A.  Smith,  26,  35,  39,  61,  62 

Hobbs,  T.,  28,  104 

Hume,  D.,  27,  28,  34,  zj,  236 

Hutcheson,  F.,  2^^  28 



Impartial  observer,  Smith's  theory  of,  39,  63 
Inequality,  Smith's  theory  of  social  responsibility  for,  93 
Ingram,  J.  K.,  47,  64 
Interest,  Smith's  justification  for,  176 


James,  E.  J.,  64 

Justi,  J.  H.  G.  von,  28 

Justice,  means  of  defraying  costs,  212  ff. 

Justice,  Smith's  theory  of,  54,  55,  59 

Kant,  I.,  29,  211,  236 
Kidd,  B,  86 

Labor  as  norm  of  value,  Smith's  views  of,  104  ff.,  127,  140, 

149  ff.,  203 
Labor  as  title  to  income.  Smith's  views,  174  ff. 
Labor,  economics  and  sociology  of,  79-154,  203 
Labor  vs.  capital,  economic  not  social  antithesis  at  Smith's 

time,  100,  128 
Laborers,  Smith's  vi'ews  about  their  defective  attention  to 

their  own  interests,  150,  153,  154 
Laissez-faire    doctrine,    fallacy    of,    186  ff. ;    meaning    of, 

154,  186,   187,   191  ff. ;   Smith's  relation  to,  215 
Landlords,  social  justification  of,  129,  150 
Le  Play,  76 
Leslie,  T.  E.  C,  11,  181 
Li  Hung  Chang,  94 
Locke,  J.,  236 

Mallock,  W.  H.,  86 
Malthus,  T.  R.,  vii,  18,  134 

INDEX  243 

Manchester  School,  32 

Marginal  theory,  102 

Market  vs.  natural  price,  Smith's  theory  of,  121  flF. 

Marx,  K.,  98,  99,  100,  107,  iia-13,  116,  126,  128,  130,  131, 

132,  137,  146,  235 
McCullock,  J.  R,  198 

Mercantilists,  Smith's  views  of,  189  ff.,  201  ff. 
Mill,  J.  S.,  vii,  Ti,  12,  21,  55,  56,  69,  ^2,  98,  139,  17I'  182 
Millar,  J,,  32 
Miller,  A.  C,  64 

Money,  Smith's  theory  of,  95  ff.,  193  ff. 
Montesquieu,  C,  28,  ZZ,  230 

Moral  judgments,   Smith's  theory  of  sources,  46 
Moral  philosophy,  non-social  in  eighteenth  century,  48 
Moral  philosophy,  relation  to  the  social  sciences,  viii,  3, 

4,  8,  II,  15,  20,  22 
Morals,  problem  of,  56 
Mun,  T.,  192 

Natural  vs.  customary  rights,  123  ff. 
Natural  vs.  market  price,  Smith's  theory  of,  121  ff. 
Neurath,  W.,  62 


Oncken,  A.,  5,  29,  60,  226,  230 


Parsimony,  Smith's  theory  of,  172  ff. 

Persons,  the  central  concept  in  social  science,  4 

Physiocrats,  Smith's  relation  to,  14,  28,  195 

Plato,  206 

Political  economy.  Smith's  dictum  of  object,  227 

Price,  Smith's  theory  of,  97  ff.,  116  ff. 


Privilege  vs.  democracy,  principle  at  issue  between,  123  ff. 
Problems  of  economics  and  sociology,  189-208 
Process,  social,  156 
Production  vs.  consumption,  3,  79 

Profits,   antithetic   assumptions   of   capitalism   and   social- 
ism, 113  ff-;  need  of  conclusive  theory  of,  114;  Smith's 
theory  of,  134  ff.,  i57^-l  vagueness  of  the  concept  in 
Smith's  theory,  iii 
Propensity  to  barter,  Smith's  theory  of,  90 
Property  rights,  failure  of  economists  to  analyze,  132 
Property,  sociological  view  of,  137;  vs.  democracy,  153 
Propriety,  meaning  of,  in   Smith's  theory,  38 
Psychology,  speculative  character  of,  at  Smith's  time,  237 
Public  works,  means  of  sustaining,  214  ff. 
Pufendorf,  S.  von,  28 


Quesnay,  F.,  195 

Rae,  J.,  Life  of  Adam  Smith,  26 
Raphael,  school  of  Athens,  157 
Rectitude,  synonymous  with  "propriety"  in  Smith's  theory, 

Religious  institutions,  means  of  supporting,  219 
Rent,  Smith's  theory  of,  116  ff.,  142  ff. ;  social  problem  of, 

144  ff. 
Revenue,  public,  sources  of,  224  ff. 
Ricardo,  D.,  vii,  72,  131,  142,  143 
Roscher,  W.,  28 
Ruskin,  J.,  on  economists,  61  ff. 

Schiller,  J.  C.  F.  von,  63 
Senior,  N.  W.,  172 


INDEX  245 

Service,  the  social  basis  for  rights,  132 

Shaftesbury,  A.  A.  Cooper,  third  earl  of,  2"] 

Simmel,  G.,  103 

Skarzynski,  W.,  60 

Small,  A.  W.,  General  Sociology,  238 

Smith,  A.,  vi,  vii,  viii,  ix,  2,  4,  5,  6,  10,  77,  81,  155 ;  analysis 
of  his  philosophy,  9,  32  ff,,  65,  66;  as  object-lesson  in 
sociological  methodology,  65 ;  Bagehot's  criticism  of, 
67  ff. ;  biographies  of,  25  ff. ;  concept  "natural,"  14 ; 
dictum  that  coi'porations  cannot  become  economically 
efficient,  217;  foolish  prophecy  about  America,  178, 
179;  Ingram's  estimate  of,  47;  labor  theory  of,  6,  203; 
jectures  on  jurisprudence^  59,  84,  204  ff.,  227 ;  loose- 
ness of  his  argument  in  latter  portion  of  The  Wealth 
of  Nations,  208  ff.,  216  ff.,  218  ff.,  222,  225,  233 ;  main 
question  in  The  Wealth  of  Nations,  8;  methodology 
of,  20,  28,  29,  181  ff. ;  moral  philosophy  of,  s^  ff-,  40  ff., 
45,  48,  52  ff.,  57-5$v6i  ff.,  81,  148,  197,  230  ff.;  relation 
to  individualism,gi)  relation  to  laissez-faire  doctrine, 
Q4^/2iSi  relation  to^netaphysics,  34;  relation  to 
modern  economists,  if  i79~^iT. ;  relation  to  psychology, 
48,  51;  relation  to  socialism,  7,  65,  98  ff.,  108  ff.;  rela- 
tion to  sociology,  167,  230  ff. ;  relation  to  utilitarians, 
34,  51,  204  ff.;  sources  of  information  about,  25-77; 
static  preconceptions  of,  56,  107  ff.,  125  ff.,  148,  149,  160; 
theory  of  capital,  15;  theory  of  consumption,  6;  theory 
of  ethics,  Lis  ff. ;  theory  of  justice,  54,  55;  theory  of 
moral  sentiments,  26,  ;is,  35,  40  ff.,  46,  49,  59,  60,  70,  71 ; 
theory  of  taxation,  228  ff.;  views  of  object  of  political 
economy,  227 

Socialism,  a  reaction  from  eighteenth-century  political 
philosophy,  207;  not  pre-eminently  social,  126;  vs. 
classical  economics,  131,  143  ff. 


Socialists  of  the  chair,  Oncken's  confusing  of  Smith  with, 

Social  variants  of  economic  forces,  135  ff.,  184  ff.,  191  ff. 
Sociological  vs.  economic  interpretation  of  historj^   181-87 
Sociologists,  true  successors  of  Adam  Smith,  4 
Sociology  and  economics,  vi,  vii,  3,  8,  10,  14,  23,  64,  65,  ^T, 

144  fif.,  146,  156,  196  ff.,  209  ff.,  218  ff.,  223,  232,  235  ff. 
Sociology,  vagueness  of,  at  Smith's  time,  22)^ 
Sombart,  W.,  i,  92 
Sovereign,  means  of  supporting,  221 
Sovereign,  Smith's  use  of  the  concept,  209  ff. 
Sovereignty,  Smith's  use  of  the  concept,  204  ff. 
Spencer,  H.,  57,  ^,  152,  212,  215 
Stein,  H.  F.  K.,  28 
Stewart,  J.,  29 

Sympathy,  place  of,  in  Smith's  theory,  38  ff.,  46-48 
Synthesis  vs.  analysis,  v 


Tarde,  G.,  86 

Taxes,  Smith's  doctrines  of,  228  ff. 

Telicism,  238 

Thomas,  W.  I.,  86 

Thomasius,  236 

Turgot,  A.  R.  J.,  26 


Umpfenbach,  K.,  28 

Utilitarianism,   Smith's  affinity  with,  204  ff. 


Value,  theory  of,  55,  56,  96  ff. 
Von  Mohl,  R.,  189,  210 

INDEX  247 


Wage-fund  theory,  133 

Wagner,  A.,  28,  31 

Walker,  R,  218 

War,  methods  of  defraying  costs,  210  ff. 

Wealth,  a  fragmentary  concept,  156,  199 

Wealth  as  a  social  factor.  Smith's  views  of,  104 

Wealth  of  Nations,  viii;  an  inquiry  in  sociology,  i,  3,  4, 
8,  II  ff.,  59,  60,  63,  66,  77;  epitome  of,  84  ff.;  primarily 
a  technological  treatise,  66,  79,  84,  90,  95,  120,  135, 

Webb,  S.,  86 

Wolff,  C,  28,  236 


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